For South Africans watching the national debt, the message from economists and rating agencies this week is a cautious one: the numbers look a little better, but daily life is unlikely to feel any different just yet.
That was the thread running through a conversation between Moneyweb’s Jimmy Moyaha and Dawie Roodt, director and chief economist at Efficient Group, who joined the show to unpack two developments that landed in quick succession. The first was last week’s mid-term budget policy statement, in which National Treasury projected that debt would come down. The second was a dissenting view from ratings agency Fitch, which has since suggested some of Treasury’s findings do not hold up.
Asked directly about Fitch’s divergence from Treasury, Roodt began somewhere unexpected: with the announcement by Stats SA that it has rebased the South African economy, revealing that the economy is in fact 5.3% bigger than previously thought.
The connection matters because the whole debate turns on the debt-to-GDP ratio. The minister of finance, working from the older GDP numbers, reckoned that South Africa’s debt-to-GDP would probably stabilise. Some rating agencies disagree, arguing the ratio will keep climbing, and Roodt sides with the sceptics. His reason is simple. He does not believe the economy will grow at the 1.6% next year and 2% the year thereafter that the minister projected in the medium-term budget policy statement.
The rebasing does not change the debt itself, but it changes the ratio. Previously it was thought debt would stabilise at about 78% or 79%. With the economy now measured as larger, Roodt puts that figure at around 74% or 75%. “There are many moving parts here,” he noted, but the underlying question remains whether the South African economy will actually grow. On that he is not optimistic. He expects growth of roughly 1.7% to 1.8% this year, and neither 1.6% next year nor 2% the year after, unless there are significant changes to macroeconomic policy. His view is that the country is stuck on a growth trajectory of about 1%, perhaps just over.
For ordinary households, that distinction between a better ratio and better growth is where the story lands. Roodt was blunt about what the improved statistics mean for the average South African: very little, for now. The numbers look better. The deficit as a percentage of GDP is likely to come down “quite nicely.” But growth, he stressed, is the differentiator between an improving economy and a stagnant one.
The rebasing itself, Roodt explained, is a routine if infrequent exercise. Nearly all economic data are estimates; only figures like exchange rates, bond prices and interest rates are hard numbers. Economists do not even agree among themselves on what belongs in a CPI basket, let alone in GDP. Every five years or so, Stats SA is supposed to revisit its measurements, because the nature of economic activity keeps shifting. Roodt offered one illustration: in the year 2000 cellphone usage was far lower than today, and it now plays a much bigger role in the economy. Better information and updated definitions, not an actual change in the economy, explain the new, larger figure.
He also tempered expectations about what the bigger headline number can achieve. Some countries have seen dramatic revisions; he recalled Nigeria’s rebasing, which showed its economy was about 25% bigger than thought. Against that, South Africa’s roughly 5% upward revision “is not really going to make much of a difference.” What matters more than the level, he argued, is the direction and the trend. The minister of finance indicated the debt trend is likely to stabilise at about 89%, while Fitch reckons it will keep rising a little, a view Roodt shares. With debt-to-GDP currently around 74%, he expects it to edge up over the next couple of years, though he does not think that will affect Fitch’s decision much. All three major agencies will weigh in before year end: Fitch on 11 December, with S&P and Moody’s delivering their decisions in November.
On investment, Roodt offered a split verdict. Capital and financial markets should remain attractive, largely because of how monetary policy is maintained in South Africa. But for anyone contemplating starting a factory or opening a new mine, the familiar obstacles remain firmly in place, and something has to be done about them.
His closing summary was measured. The country now has a slightly bigger economy to work with, and the statistics are a little better than before. But until the growth question is answered, the improvement is one of measurement more than experience, and whether that question gets resolved is what ordinary South Africans will be watching for when the ratings decisions land in November and December.