With the petrol price scheduled for a 10 cents a litre increase and the escalation in the lending rate of .25% announced by the Reserve Bank, deeply indebted South Africans are in for a torrid time.
With some 21.71 million credit-active consumers collectively owing around R1.44-trillion as at the end of March (according to Statistics South Africa), the picture is gloomy to say the least.
Neil Roets, CEO of one of South Africa’s largest debt management firms, Debt Rescue, said there had been a steady decline in the fiscal health of consumers with many falling ever deeper into the debt trap.
“Although figures released by the National Credit Regulator show a dramatic decline in the number of consumers with impaired credit records compared with the same period last year, this is largely the result of the newly published Department of Trade and Industry regulations on the Removal of Adverse Consumer Credit Information.”
The only records that remain on credit bureau databases are those of consumers with judgements against them and they also have to be removed as soon as those outstanding debts had been settled.
A clear indication of the dire state that consumers are finding themselves in is the fact that according to Standard Bank, South Africans are among the worst savers in the world.
It said the ease of access to secured and unsecured lending had resulted in rising household debt levels, which made it increasingly difficult for consumers to save money.
Standard Bank’s head of deposits and payments Michael Daniels says South Africa had high household debt to disposable income, which was currently sitting at “75% and starting to pick up”.
As the prime lending rate starts to increase, Daniels says disposable income might also be under pressure.
Roets said Debt Rescue had experienced steady growth in the number of clients seeking help by being placed under debt review.
“This is to some degree the result of the general increase in the cost of living but the regular monthly increases in the fuel price is beginning to play a major role. Further expected increases in the repo rate will have an adverse impact on indebted consumers who are barely able to make ends meet,” he said.
“Many consumers will lose their middle class status and become impoverished due to the general increase in the cost of living and rising inflation,” Roets said.
Independent economist Dawie Roodt disputed the Automobile Association’s assertion that the petrol price would rise by 26
cents a litre.
“The relative strength of the Rand to the Dollar and a stable crude oil price mitigates against an increase of much more that around 10 cents a litre,” he said.
Earlier this month, the petrol price increased by 29 cents a litre which with the added projected increase will take the fuel price to near record high levels.
Roets said rising prices and slow economic growth are making it difficult for many South Africans to pay back their loans on time.
“The writing is on the wall for many middle class families who have only recently escaped from dire poverty. Many will be pushed back into poverty,” Roets said.