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South Africa’s Post Coronavirus Economic Recovery Faces Risks

29 September 2020 – South Africa’s post coronavirus economic recovery will face a number of constraints, with risks of a larger than forecast contraction this year tilted to the upside, ratings firm Moody’s said on Monday.

A recession deepened by the impact of the coronavirus has frustrated economic reform efforts in the country aimed at reducing government debt and attracting foreign investment.

Moody’s rates the country’s debt at sub-investment grade – as do the other two main ratings firms S&P and Fitch – and forecast earlier this month that the South African economy would shrink 6.5% in 2020.

In a virtual conference Moody’s lead analyst for the country, Lucie Villa, said the main concern was the government’s “exit strategy” as it unwound Covid-19 economic support measures and reinstated the fiscal consolidation promised before the pandemic.

Villa said the firm’s next credit review would come after Finance Minister Tito Mboweni’s medium-term budget, due in October, and there was “quite some downside risk” to the economic forecast for 2020.

“In all likelihood we’re going to remain in an environment whereby the government is highly constrained in terms of slowly removing the support measures for the economy. Of course if you go too quickly or too slowly you jeopardise the recovery.”

Any further cut to the country’s credit rating could push up government borrowing costs.

Soon after imposing one of the strictest lockdowns in the world in March, President Cyril Ramaphosa announced a R500-billion stimulus package that included tax waivers for business and higher social and unemployment income grants.

The strict lockdown saw the economy contract by a record 51% in the second quarter on an annualised basis, or 16.4% in unadjusted terms, and the stimulus support has been criticised as too small and badly administered. Source (Engineering News)