Entries for 'South Africa'
February 17, 2021
Improved market sentiment will allow African sovereigns to return to the market in ‘21. We expect Egypt, Nigeria, Ghana, and South Africa, among others, to issue Eurobonds. However, debt sustainability and liquidity concerns are rising in the context of COVID-19. African countries face Eurobond repayments of close to $100 bn in the coming years. An end to the current low-interest rate environment could make rolling over of debt costly.
January 27, 2021
CEEMEA countries recovered faster from the initial COVID-19 shock than expected. This is mainly due to virus containment allowing for a faster reopening of businesses. As a result, we are revising our estimate of the contraction in 2020 from 5.2% to 3.2%. However, a second wave of infections weighed on economic activity in recent months. We expect modest growth of 3.8% in 2021, but much depends on vaccinations efforts.
November 2, 2020
In the October MTBPS, the government increased deficit targets again. This will result in a steeper rise and higher peak of government debt. We see substantial risks to both revenue and expenditure projections. Additional budgetary support to troubled SOEs also looks likely in ‘21.
October 14, 2020
We expect a slow and uneven recovery in non-resident capital flows globally. CEEMEA should fare somewhat better with a broad pickup in ‘20H2 and ‘21. The recovery will likely be driven by stronger FDI and portfolio capital flows. A possible COVID-19 resurgence and geopolitical risks weigh on the outlook. If sentiment worsens, Turkey, South Africa, and Ukraine will be most exposed.
September 9, 2020
Widening fiscal deficits could create financing challenges going forward. As the economy recovers, domestic investors may provide less funding. If fiscal consolidation is not realized, “prescribed assets" are one option. South Africa could also approach the IMF for a Stand-by-Arrangement.
July 28, 2020
South Africa faces a combination of fiscal and external risk.
Large current account deficits will not re-emerge soon, …
but nonresident holdings o...
July 1, 2020
The Supplementary Budget Review shows higher deficits and quickly rising debt. Nonetheless, foreign investors returned in May and yields have fallen sharply. A credible consolidation strategy is needed in October to sustain investor interest. Plans hinge on cuts to non-interest spending that will be difficult to implement.
May 27, 2020
We now expect an even deeper output contraction of 5.7% in the CEEMEA region. Effects of the COVID-19 shock are increasingly visible in the data for March-April. We downgrade growth in South Africa, the Czech Republic, Ukraine, and Russia. The fall in activity prompted authorities to implement fiscal stimulus measures. Together with cyclical revenue weakness, additional spending will widen deficits. CEEMEA central banks cut rates and some began government bond purchases.
May 6, 2020
COVID-19 presents a challenge to BoPs in the Sub-Saharan Africa region. Lower commodity prices will sharply reduce exports in many countries. Dependence on tourism and remittances will also have a negative effect. C/A deficit financing is going to be challenging due to risk-off sentiment. Multilateral funding can cover some gaps, but solvency is an issue as well.
April 29, 2020
COVID-19 is exacerbating existing vulnerabilities in Sub-Saharan Africa. The global recession and drop in commodity prices hit the region hard. We present a framework to summarize SSA’s exposure to different risks. Multilaterals need to play an important role in the region going forward.
April 22, 2020
Growth across Sub-Saharan Africa is expected to slow down markedly. This is a result of lower global demand and falling commodity prices. Lower growth will inhibit advances in living standards across the region. We are concerned that COVID-19 outbreaks in SSA could be disastrous. Multilateral support, including from the IMF, is needed going forward.
April 1, 2020
We believe multilateral support will be critical for South Africa going forward. Moody’s rating downgrade will likely trigger further capital outflows in 2020Q2. This will continue the pressure on the ZAR, which we have flagged as overvalued. Economic contraction and higher funding costs will likely make debt unsustainable.
March 4, 2020
South Africa’s 2020 budget was well-received by financial markets. The proposed adjustment is largely driven by cuts to the wage bill. Savings are just enough to offset weaker revenue due to weak growth. Thus, public debt is still set to increase to ~70% of GDP by FY22/23. Key risks remain low growth, union resistance, and struggling SOEs.
January 29, 2020
South Africa and Mexico face significant fiscal risks from struggling SOEs. Both Eskom and Pemex are receiving sizable support from governments. Such risks prompt SARB and BANXICO to keep real rates above EM peers. A downgrade of sovereign credit ratings could lead to large portfolio outflows. However, risks to debt sustainability are higher in South Africa than Mexico.
December 20, 2019
Structural impediments remain unaddressed and constrain near-term growth. Low growth is the main reason for revenue underperformance and rising debt. Credible fiscal consolidation could improve business and consumer sentiment, paving the way for real GDP growth to pick up to around 2% in the medium term.
December 11, 2019
The release of the 2019 MTBPS was a wake-up call for politicians, just like in 2017. The 2020 budget in February, union negotiations, and Eskom resolution are key. Moody’s is likely to downgrade South Africa’s rating to sub-IG sometime in 2020. A deep domestic market and low short-term and FX debt mitigate our concerns. But with deteriorating debt dynamics, South Africa is exposed to external shocks.
November 13, 2019
Weak growth has led to deteriorating debt dynamics in recent years. Falling business and consumer confidence do not point to a recovery. External imbalances remain despite weak activity and depreciation. Interest payments to non-residents have risen sharply due to high debt. The Rand is vulnerable to shifts in market sentiment and portfolio flows.
November 6, 2019
Markets were disappointed by the 2019 MTBPS announcement. Revisions to growth, deficit, and debt were worse than expected. This follows an Eskom plan lacking details on debt restructuring. Moody’s changed the outlook to negative but kept the IG rating. Key market concern is no longer the rating, but debt sustainability.
October 23, 2019
Investors finished the IMF/WB meetings on a less negative note. Concerns remain, but fewer worried about the risk of a recession. Monetary easing and a US-China trade deal would be supportive. Barring surprises from the Dollar, modest flows to EM are likely. The IMF's integrated policy framework remains a key topic for EM.
October 2, 2019
South Africa’s debt could reach as high as 95% of GDP in a pessimistic scenario. Low growth, high interest payments, and a decade of mismanagement are at fault. SOEs are a drain on public finances, and Eskom alone could add 6pp to debt. Mitigating factors are SARB independence, limited FX debt, and long maturities. Moody’s may put SA on negative watch but keep the IG rating for a little longer.