Sona 2020 long on promises, short on detail, says Fitch

President Cyril Ramaphosa’s state of the nation address (Sona) promised progress, but offered little detail on key policy areas such as energy, public finances, and land reform, credit ratings agency Fitch said on Friday.

The agency, which already rates SA government debt as junk, has had SA on a negative ratings outlook since July last year due to SA’s fiscal challenges and rising debt to GDP levels, as well the risks to the country’s already weak economic growth prospects.

“The difficulty of addressing competing priorities of reducing inequality, raising growth, improving public finances and containing populism and infighting within the ANC will continue to limit the government’s ability to take more decisive steps to accelerate growth,” Fitch said in a statement.

Fitch said that despite Ramaphosa’s undertakings on energy reform — such as self-generation by power consumers and the expedited entrance of independent power producers (IPPs) — load-shedding is likely to persist and will weigh on investment and economic growth.

The president promised spending cuts to help stabilise state finances, with the details left up to finance minister Tito Mboweni to deliver in the upcoming budget. Mboweni has indicated that SA needs about R150bn in savings in the coming three years. With the public-sector wage bill accounting for about 35% of spending, and with little room to raise taxes in a weak economic climate, Mboweni has flagged salaries as starting point for much needed savings.

Though Ramaphosa emphasised ongoing talks with unions about containing the public wage bill and reducing waste, Fitch was unconvinced. Given that the current wage settlement will only expire in 2021, Fitch said it “does not expect any clear commitments on reducing the wage bill relative to previous plans”.

Ramaphosa did not address recent ANC statements on land expropriation without compensation, suggesting that the party wants to limit judicial oversight in the process, said Fitch. It views the debate on land reform as “largely symbolic”, and believes the government will “make only very limited use of any constitutional provisions for expropriation without compensation”. 

“However, the discussion will continue to be of concern to foreign investors, as it highlights policy risks associated with the country’s exceptionally high level of inequality and the potential for social instability,” Fitch said.

Fitch was also sceptical of union federation Cosatu’s proposal to take over R250bn in Eskom debt into a vehicle backed by the Government Employees Pension Fund (GEPF), managed by the Public Investment Corporation (PIC). The plan is unlikely to materialise given the legal and political challenges associated with it, the agency said. Though Ramaphosa did not explicitly back Cosatu’s proposal, he did refer to ongoing discussions with stakeholders on reducing Eskom’s debt burden.

“However,” said Fitch, “we expect any improvement in Eskom’s finances to be matched by deterioration in those of the entities taking over the debt, limiting the impact on the overall public-sector balance sheet.” 

donnellyl@businesslive.co.za