Ratings agency worries about SA’s debt, but a one-off health and economic shock calls for stimulus measures
The unprecedented economic impact of coronavirus-induced lockdowns has necessitated that governments support their economies. SA recently announced a R500bn fiscal support package to mitigate the adverse health and economic consequences of the Covid-19 pandemic.
The stimulus package is funded by reallocating expenditure in the current budget and other low-interest options through institutions such as the Unemployment Insurance Fund , the New Development Bank, the World Bank and the International Monetary Fund. The popular myth is that it is government overspending that leads to high debt levels, a widening deficit and crowding out of the private sector. This is incorrect. In contrast to this myth, high public debt is often a direct result of government bailouts, guarantees and contingencies to either state-owned entities or private businesses, to rescue them from bankruptcy. Another driver of debt is inefficiency in revenue collection by the tax collection agency.
While it is incorrect for the ratings agencies to criticise the government’s stimulus response package to the coronavirus crisis, there is a need to reconfigure the rating indicators from the traditional austerity-based risk factors. The following variables should be considered in rating models instead:
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