Abstract
study is set to explore political and economic indicators of sovereign risk for South Africa’s International Monetary Fund’s loan taken in 2020. The tenets of sovereign risk are being explored in a South African context. The significance of this study lies in understanding sovereign risk from a South African context and forecasting the country’s capacity and sustainability of servicing its IMF debt in the near future. This study presents a special and underexplored case of sovereign risk mainly due to 2020 being the first time of South Africa taking an IMF loan since the inception of a democracy in 1994. This qualitative desktop study heavily relies on secondary literature, theories, and predictive forecasting models and is aided by descriptive statistics to reach its conclusion. The crux of the argument presented in this study emphasise on the role of political risk and the political economy in ascertaining sovereign risk. Hence, this research identities tenets of political risks, economy, debt profile, macroeconomic and the political economy of South Africa in understanding indicators of sovereign risk. Findings from the Council of Foreign Relations used the CFR Sovereign risk tracker designed to gauge the susceptibility of emerging economies default on external debt. It assesses the likelihood of a country defaulting within the next five years where a score of 10 indicates a 50% or higher probability of defaulting. South Africa has scored 3 out of 10 and the credit default swap spread of 301 bps.
Indeed, the research and forecasted scenarios do indicate the low likelihood of the country defaulting on its IMF loan. Judging from the current economic outlook, which identities as sluggish but still robust and sufficient to sustain its scheduled loan repayments as indicated by the endogenous theory. The latter is substantiated by South Africa’s stable debt profile of ensuring the repayment of debt in scheduled plan. However, sustainable debt servicing comes as a trade-off on taxpayers. To put this into context, debt servicing is most likely accounted for by high taxation on goods and services while taxpayers are bound to pay higher taxes according to the tenets of Marx theory on public debt. Additional scenarios signal low possibilities of default with elevated probability of a debt trap, deepened austerity policies, cost of living crisis and debt spiral.