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Consumers dragged into credit overload
Economists say badly needed relief in the form of an interest rate cut is many months away, reports LUCIENNE FILD
People are no longer just buying luxury items on credit, but the basic living essentials, says Jaco van Jaarsveldt, business analyst at Information Trust Corporation. And the short-term outlook for debt-stricken South Africans is grim: economists predict that interest rates will remain at their present sky-high level until late this year or early next. Consumers are already spending 66%, or more than two-thirds, of their personal disposable income on debt repayments, and bad debt judgments against individuals are reaching frightening proportions. Van Jaarsveldt blames high interest rates for the precarious debt situation that thousands of South Africans find themselves in. He says if they are to keep their heads above water consumers will have to start managing their debt carefully by buying selectively on credit. Businesses, he says, need to implement effective credit risk management in an effort to curb the increase in bad debts by selecting carefully who qualifies for credit and who does not. This will reduce a business's risk of bad debts and will also help individuals to stay out of debt's clutches. Econometrix economist Ilse Laubscher says consumers embarked on a borrowing frenzy after realising that merely reducing their saving rates was no longer enough to maintain their living standards. This, she says, was brought about by slow economic growth over the past decade, which resulted in low growth in real incomes while tax rates were increased. Laubscher says banks are actively promoting the use of credit facilities while a large number of retail outlets have introduced in-house credit cards to promote sales. This has resulted in extensive credit problems caused by indiscriminate consumer spending. Depressing figures released recently by the Central Statistical Services show that consumers are drowning in debt in their thousands. Judgments handed down for debt by civil courts countrywide increased by 22 530 cases (18%) in the three-month period from December 1996 to February 1997, compared with the corresponding period last year. The summonses issued for debt in this period totalled 289 882, up 7.5% on last year.
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