Finance Minister must stave off further credit ratings downgrades while boosting confidence in the economy
FINANCE Minister Tito Mboweni this week begins a huge task to stave off further credit ratings downgrades while boosting confidence in the economy that has been distraught with rising borrowings.
On Wednesday, Mboweni revealed the extent of the government’s borrowing due to the pandemic, support for struggling state-owned enterprises (SOEs) and finding funding the country’s Covid-19 vaccination programme.
In October, he said that contingent liabilities were expected to exceed R1 trillion by 2023 due to government guarantees to SOEs.
The government has increased its borrowing substantially, partly to fund current expenditure such as civil servants’ remuneration increases above inflation.
But economists have warned debt levels remained a downward risk to the fiscus that could push the economy deeper into junk status.
Liberty’s consumer economist, Tendani Mantshimuli, said the government’s debt levels would not come down steadily over time as projected in the 2020 Budget.
“We now know that this will not be the case. The minister is more likely to announce even higher debt levels than were even projected during the special Budget in October last year,” Mantshimuli said.
“With high debt levels comes higher debt-servicing costs which further reduces revenue that could be spent elsewhere.”
The national debt is forecast to reach R3.56 trillion, or 65.6 percent as a share of gross domestic product (GDP) by the end of 2020/21, peaking at 93 percent of GDP in 2023/24.
The fiscal deficit is expected to rise from 6.4 percent of GDP to 15.7 percent of GDP this financial year.
Investec’s chief economist Annabel Bishop warned that the country’s borrowing levels were already approaching bankruptcy levels.
Bishop said South Africa remained on a negative outlook.
“South Africa is at risk of credit rating downgrades this year, as it is on a negative outlook from both Moody’s and Fitch, while its economic growth trajectory will likely be weak, and it has been slow in implementing reforms,” Bishop said.
Bishop said the weak economic growth trajectory and slow pace in implementing reforms was putting South Africa at risk of credit rating downgrades this year.
“Manageable debt levels are the key to fiscal sustainability for South Africa.”
In November, ratings agencies Moody’s and Fitch both cut South Africa’s foreign and local-currency ratings two and three levels below investment grade respectively, with the outlook remaining negative.
Earlier this month, Moody’s published a note warning that it would likely downgrade South Africa further if its debt burden continued to grow.
PwC chief economist Lullu Krugel said that the Budget was unlikely to depart from previous financial commitments made to SOEs. Krugel said it was likely that political pressures will prevent the National Treasury from reducing the quantum of expenditure allocated to the bailout of SOEs.
“Given the high and rising levels of the government debt, it is possible that ratings agencies are not satisfied by Budget 2021.”
– BUSINESS REPORT