South African downgrades will raise regional risks

Subject

Regional impact of South Africa's downgrades.

Significance

In April 2017, Standard & Poor's and later Fitch downgraded South Africa's sovereign credit rating to junk status. This has raised regional risks for members of the Southern African Customs Union (SACU), who rely on the union for government revenues. South Africa's ratings downgrades will reduce revenues for other members, who received 46.0 billion rand (3.56 billion dollars) of the 84.0-billion-rand revenue pool in 2015-16, and force cutbacks in government spending across the region.

Impacts

• Botswana's government revenue will only be moderately constrained by the downgrades.
• Namibia will be resilient to reduced SACU revenue in the short term, supported by a loan from the African Development Bank.
• South Africa will struggle to reassure investors that a new finance minister does not signal a change in fiscal policy.