Audio By Carbonatix
Credit-rating companies should suspend their assessments for the foreseeable future because downgrades can force asset managers to sell sovereign debt and unnecessarily increase the cost of capital when economies are already facing headwinds due to the coronavirus pandemic, according to the head of South Africa’s tax agency.
Some of Africa’s biggest economies, from Ghana through Angola, Nigeria and South Africa, have had their debt assessments downgraded or the outlook on their ratings changed to negative by more than one credit-rating company since March. That’s due to rising risks emanating from the coronavirus outbreak, and their effects these governments’ ability to find funding and service debt.
“Whilst we understand the underlying factors that are pointed out by the ratings agencies, we think that during such a time of crisis, where the whole world is recalibrating and redefining its economic status, for any downgrades to be issued during this time is like kicking us when we’re down,” South African Revenue Service Commissioner Edward Kieswetter said Tuesday in an online press conference.
S&P Global Ratings downgraded South Africa’s debt further into junk territory last week over concerns that the pandemic will have a significant negative impact on its “already deficient growth and fiscal outcomes.” That took the nation’s debt assessments to the lowest levels since it first obtained credit ratings 26 years ago.
It followed a similar move by Fitch Ratings in April and a downgrade by Moody’s Investors Service in March that removed the country’s last investment-grade rating.
A nationwide lockdown in South Africa caused a 9 billion-rand ($490 million) under-recovery in revenue in April, Kieswetter said.
Tax collections could decline as much as 285 billion rand in 2020 as a result of the restrictions that limit economic activity. That would widen the country’s budget deficit to more than 10% of gross domestic product, according to estimates from Moody’s and Fitch, and the increased borrowing would push up government debt levels. The largest shortfall on record was 11.6% of GDP in 1914, followed by 10.4% in 1940, according to the central bank.
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