South African elections: Bigger governability challenges likely as ANC loses majority

Scope currently projects net interest payments to rise from 18.4% of revenue last year to 25% by 2029. Debt and interest forecasts are high by emerging market standards . Any shock adverse to these assumptions could call into question the sustainability of the debt, thus risking a sudden reversal of capital inflows.

Fiscal challenges are concerning as spending increases are already well entrenched for years to come, given the effects of higher and longer interest rates (yields on the 10-year rand have remained elevated at around 11%), unmet social spending demands (such as an extension of the Social Emergency Basic Income), wage increases and support for state-owned enterprises like Eskom.

Furthermore, additional spending is crucial to counteract structural limitations, notably on energy and infrastructure. The next government will therefore have to balance growing budgetary tensions with the need to consolidate its public finances to ensure debt sustainability. Scope forecasts that public deficits will average 6.3% of GDP over the period 2024-29.

Our budgetary projections could experience more tension in a scenario of entry of the FEP or a deputy into the government. Conversely, a government involving DA could see its deficits reduced.

Scope Ratings is then expected to review South Africa’s credit ratings by September 13, 2024. A less coherent government and in particular any further downgrade in economic and/or fiscal challenges could jeopardize the stable outlook assigned to the ratings .

Podcast: Scope’s Dennis Shen and Thomas Gillet join Tellimer Insights to discuss the elections (registered May 31, 2024).

For a look at all of today’s economic events, check out our economic calendar.

Dennis Shen is Senior Director of Sovereign and Public Sector Ratings at Scope Ratings GmbH, and lead analyst for South Africa’s sovereign credit rating. Elena Klare, associate analyst at Scope, contributed to this article.