Fitch: Medium-term budget fails to show any clear path to halt SA’s debt slide
Credit ratings agency Fitch said on Thursday that the government has failed to outline a clear path to stabilise the country’s debt-to-GDP ratio in the medium-term budget policy statement (MTBPS).
The ratings agency already has SA at sub-investment grade, on BB+, and revised its outlook to negative in July.
Wednesday’s medium-term budget outlined a significantly worse set of government financial metrics than had been expected. Along with substantial revisions to the growth forecast for the economy for 2019 — reduced to just 0.5% — it revealed the budget deficit is expected to rise to 6.2% in the coming three years, while debt to GDP is expected to soar to more than 7.1.3% by 2022/2023.
But the statement revealed little in the way of a plan to combat the deteriorating debt outlook, according to the agency.
“The MTBPS does not outline a clear path to its stated objective of stabilising government debt to GDP by 2025/2026,” Fitch said. “Failure to stabilise the debt-to-GDP ratio over the medium term is a negative rating sensitivity.”
The slide in the government’s finances comes in the form of much weaker-than-expected revenue collections, along with higher spending on ailing state-owned enterprises — notably Eskom. Revenue collections in the coming three years are expected to fall short by a total of more than R250bn.
Planned expenditure cuts only partly compensate for the lower revenues and added Eskom support, said Fitch
Although finance minister Tito Mboweni indicated the government’s intention to find R150bn in savings over the medium term, these will only be announced in the 2020 budget in February. Savings will also depend on negotiating steep reductions in the public-sector wage bill with public-pubsector unions.
Said Fitch, “Trade union resistance is also likely to hamper existing government plans to re-structure Eskom and improve its operational performance.”