South African Elections: Greater Governability Challenges Likely as ANC Loses

*Government forecasts are based on fiscal years – so a slight difference from the calendar years used for Scope projections. Source: IMFWEO; National Treasury (South Africa) and Scope Ratings forecasts.

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

Budgetary challenges are concerning as spending increases are already entrenched for the coming years, given effects of higher-for-longer rates (10-year rand yields having stayed elevated at around 11%), outstanding social-spending requirements (such as an extension of the Social Relief of Distress basic income), wage increases, and support for state-owned enterprises like Eskom.

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

Our budget projections might see further stress under a scenario of EFF or MK entering government. Conversely, a government involving DA may see deficits narrow.

Scope Ratings is next scheduled to review South Africa’s credit ratings by 13 September 2024. A less coherent government and specifically any further impairment of economic and/or fiscal challenges might place at risk the Stable Outlook assigned to the ratings.

Podcast: Dennis Shen and Thomas Gillet of Scope join Tellimer Insights to discuss the elections (recorded 31 May 2024).

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

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