SA barely has enough foreign-exchange reserves to cover its near-term debt obligations, but this is not as alarming as it appears, Moody’s argued in a research note on Tuesday.
Of SA’s R173bn external debt, only about R76bn, or 44%, is in foreign currency, and the bulk of this has been loaned to the private sector rather than the government.
"The structure of external debt implies that the country's capacity to meet external payments is greater than implied by this coverage ratio," Moody’s analysts wrote.
With 56% of its debt serviced in rand, "payments due do not represent a call on reserves", the report said.
The credit rating agency forecasts SA’s foreign exchange reserves will decline from the $41.5bn reported in April to about $38bn by the end of 2018 as the country struggles to attract foreign direct investment and other capital inflows.
Moody’s said its previously forecast current account deficit of 2.7% of GDP for 2018 needed to be raised since the last reported figure was 4.8% of GDP.
"As it stands, reserves cover about 55% of total foreign-currency debt, enough to cover all short-term foreign-currency debt and maturities through part of 2020."
While Moody’s is confident SA will be able to pay its foreign debt, the report raised concern that the Reserve Bank may have to raise interest rates to service the government’s rand-denominated borrowings.
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