Ratings agency Fitch said Finance Minister Tito Mboweni’s medium-term budget policy statement (MTBPS) failed to outline a clear path to stabilise government debt.
“Rising real primary expenditure underlines the difficulty of reining in the public sector wage bill and persistent social pressures for better services in the context of divisions within the governing ANC. The MTBPS contains significantly worse fiscal projections than the February budget,” said Fitch spokesperson Peter Fitzpatrick.
He said that under the new MTBPS projections, gross loan debt, which excludes local government debt, would rise by 11.8% between 2018/19 and 2021/22 and would remain on an upward trajectory thereafter.
“We anticipated significant deterioration in fiscal metrics relative to the February budget forecasts when we revised the rating outlook on South Africa’s ‘BB+’ sovereign rating to negative in July. We forecast a fiscal deficit in the current fiscal year of 6.3% and a rise of gross loan debt to 66.6% in 2021/2022 at our last review. The higher gross loan debt forecast in the MTBPS reflects a smaller planned adjustment over the coming three years than we had expected,” said Fitzpatrick.
He said the deterioration in government fiscal projections primarily reflected a much weaker-than-expected revenue performance.
“The MTBPS’s forecasts also incorporate additional commitments to Eskom of R69 billion [1.3% of GDP] over 2019/20 to 2021/22. These previously announced commitments go beyond those in the February budget, which were worth 0.4% of GDP per year.”
Fitzpatrick pointed out that government might consider new tax measures or a return to plans for across-the-board expenditure cuts.
“The government is considering taking over some of the R441 billion of Eskom’s debt, but has made this conditional on making progress towards Eskom restructuring. Debt forecasts do not yet incorporate this. However, the risk posed by contingent liabilities is reflected in South Africa’s rating, because one of the notches we subtract from the sovereign rating model outcome in our qualitative overlay is for public finances, partly reflecting pressures from state-owned enterprises,” he added.