As fixed income managers, we have been extremely focussed on the credit rating agencies and their assessment of South Africa of late. The recent credit rating downgrades have been because of the erosion of South Africa’s economic, fiscal and institutional strength. This has all been centred around an extremely uncertain policy environment. Policy change has largely been focused on actively trying to address South Africa’s extreme income inequality, which is considered dangerous and one of the highest in the world. come without However, these types of policy changes do not their risks in creating further unwanted imbalances that may be detrimental from a ratings perspective, and even lead to a consumer that is worse off down the line.
One such example of this policy change is the recent proposal from the Department of Trade and Industry (DTI) on the amendment to the National Credit Act (NCA) to allow for Debt Relief. Consumers are finding it difficult to repay loans as slow economic growth, retrenchments and rising unemployment has diminished household income. Efforts to introduce amendments to the NCA to provide for Dept Relief and forgiveness is an urgent item on Parliament’s agenda as debt continues to cripple many South Africans. The National Credit Regulator (NCR) is also in favour of some form of Dept Relief. We believe that a proposal to relieve consumers of their debt is flawed and if implemented, is another example of a potential further erosion of financial stability in South Africa. This will most certainly lead to a deterioration in the integrity of the robust and well capitalised financial sector which the rating agencies have highlighted as one of the few credit strengths in their recent assessments of SA.
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