The ANC’s support in the election campaign appears to be holding, and according to opinion polls, President Cyril Ramaphosa’s popularity is soaring. The leadership of a business-adept president along with investment and jobs summits was supposed to have a catalytic effect of the economy.
As a result, South Africa is hanging on by a thread to what is known as a “mixed rating”, and has avoided the ignominious tag of being “junked” or, more precisely, South Africa’s debt would be trading in junk bond territory. When you have more than R1-trillion in government debt swishing around in international markets, this is not a minor issue.
For South Africa, there is another big problem. To some fanfare, the country became a member of the World Government Bond Index in 2012. Bond index funds are enormous, and just participating in this index more or less required international investors to invest in South Africa’s bonds to make sure their returns matched the index.
Reading between the lines a bit, it may be that Finance Minister Tito Mboweni had a terrible decision to make prior to the budget: Either save Eskom or try and stave off a junk rating. He chose the former, announcing a thumping great rescue package for Eskom, presumably on the basis that if Eskom wasn’t saved, South Africa’s partial-investment grade rating was toast anyway.
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