A screen displays Moody’s ticker information at the New York Stock Exchange in this file photograph. Picture: REUTERS
A screen displays Moody’s ticker information at the New York Stock Exchange in this file photograph. Picture: REUTERS

The South African government’s target of "fiscal consolidation" — reducing debt — in the near term is overly optimistic, credit ratings agency Moody’s said in a report on Wednesday.

"We expect a slower pace fiscal consolidation than the government of SA is forecasting," Moody’s vice-president, Lucie Villa, wrote in the report titled "Government of SA: Fiscal slippages likely this year, but medium-term targets remain within reach".

Moody’s forecast that economic growth would be weaker than the government expected while its public-sector wage bill rose. However, Moody’s stressed that the medium-term deficit targets still remained within reach.

"If met, [these] will support a stabilisation of debt levels and reinforce Moody’s assessment of the sovereign’s fiscal and institutional strengths."

Moody’s expects a fiscal deficit of about 4% of GDP in 2018-2019, which is 0.4 of a percentage point lower than the government’s target. The fiscal deficit is expected to reach the 3.5% target by 2020-2021, with debt likely to stabilise at about 56% of GDP, said Moody’s.

"Moody’s expects that near-term fiscal adjustments will be made on the spending side, based on the government’s record of operating within spending ceilings and undershooting revenue targets."

At the end of March, Moody’s affirmed SA’s investment-grade credit rating and revised its credit outlook to stable from negative, saying the previous weakening of national institutions was gradually reversing, which supported an economic recovery.

Its next review is expected ahead of the medium-term budget policy statement in October.

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