Avoid debt at all costs, SA’s money matters are turning nasty

Consumers must avoid falling into a debt trap “like the plague” as the possible downgrade of South Africa’s credit rating by Moody’s next month could undermine the December petrol decrease and the recent Reserve Bank repo rate reduction, experts said.

Efficient Group’s chief economist Dawie Roodt said despite the 25-basis point reduction in the repo rate by the Reserve Bank, it was highly likely ratings agency Moody’s would downgrade SA’s sovereign rating to junk status in February.

Roodt said with much of the downgrade already priced in by the market, it would nonetheless send a negative message to the foreign investor community.

“That message is that SA does not have an effective plan to turn around the economy and that things are going from bad to worse,” he said.

Roodt said other factors that would play a role in determining SA’s position included the fuel price and load shedding.

Load shedding has been a bone of contention among senior officials in the ANC. The crisis resulted in the resignation of Eskom board chair Jabu Mabuza, and calls for Minister of Public Enterprises Pravin Gordhan to step down.

Following a special meeting of the ANC national executive committee (NEC) at the weekend, President Cyril Ramaphosa ignored the calls and the NEC did not entertain them. This was seen a victory for the president, who is using Gordhan as a guard against corruption and state capture.

Respected economist Mike Schussler said Eskom’s load shedding would be a major impediment to economic growth this year.

“It all depends on Eskom – whatever happens, we are going to have a big fall in the economy. I don’t know how big, but it all depends on load shedding,” Schussler said.

Roodt highlighted other factors, including the effect of the much-anticipated downgrade. He said that the fuel price would remain stable in February, with perhaps a small increase in the price of diesel, which would help to mitigate the blow.

The overall outlook remained dismal, with Eskom showing no sign of an imminent turnaround under its new chief executive officer and SAA hovering on the brink of bankruptcy.

“It is common cause [the SA Revenue Service] is not meeting expectations in collecting taxes to cover the state’s budget,” he said.

“So, a number of options, including increased taxes, an increase in the VAT rate and all manner of rates and levies, to bail the government out of the crisis it created for itself are likely to be announced in the budget speech in February.”

Matters that would impact negatively on dismal economic growth rate and fuel rising unemployment included Sars’ continued poor tax collection, which could mean bad news in Minister of Finance Tito Mboweni’s budget.

Consumer economist and chief executive officer of Debt Rescue Neil Roets said consumers should brace for even tougher times. He cautioned that consumers should prioritise reducing debt levels and avoid new debt.

“We are in trouble and nowhere is there even a glimmer of hope on the horizon,” Roets said.

“Numerous corporates, including Telkom and the mining industry, are planning substantial layoffs. Deeply indebted consumers are in trouble with nowhere to turn for relief other than to try and settle their debts over a period of time by going under debt review.

“Eskom’s debt, alone, is enough to cause the government serious problems, let alone its outstanding debts of more than R2 trillion that have to be repaid. Any plans Ramaphosa and Gordhan may have had to cut jobs in the civil service have been shot down by the unions.”

A recent Debt Rescue in-house survey found 24.8% of consumers had piled up debt to pay day-to-day expenses. A huge 43% spent 50% or more of monthly income on debt.

– ericn@citizen.co.za

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