Picture: REUTERS
Picture: REUTERS

The budget showed further erosion in fiscal strength, credit rating agency Moody’s Investors Service said.

In a statement following the 2019 budget speech on Wednesday, Lucie Villa, a Moody’s senior credit officer and lead sovereign analyst for the country, said: “SA’s budget highlights the government’s limited fiscal flexibility amid a challenging economic environment. The budget shows a further erosion in fiscal strength after the October medium-term budget policy statement already pointed to wider deficits for longer.”

Finance minister Tito Mboweni painted a bleak picture of SA’s ballooning debt as he announced a massive cash injection into Eskom.

Treasury will allocate R23bn a year for the next three years to the power utility in an attempt to support the urgent operational changes planned.

“Government support for Eskom, which will be only partially compensated by a reduction in other spending, and revenue under-performance lead to a renewed upward revision in fiscal deficits and debt levels, while contingent liability risks persist,” Villa said.

Moody’s is the only major ratings agency that has not already downgraded SA’s sovereign debt to sub-investment grade. The ratings agency has SA’s debt at Baa3 with a stable outlook, one notch above junk status. Both Fitch Ratings and S&P downgraded SA’s sovereign debt to non-investment grade in 2017 in response to a surprise cabinet reshuffle during former president Jacob Zuma's term.

Mboweni said the Treasury has had difficult conversations with Moody’s in recent weeks but that “there are many positives the rating agencies should take into account” citing a fix for Eskom, the implementation of chief reconfiguration officers to oversee the utility and green shoots in the economy.

A downgrade from Moody’s would see SA ejected from the major Citi World Government Bond Index which would trigger capital outflows and hampering investment and economic growth.

Moody’s is scheduled to make a ratings announcement on March 29 but could change SA’s outlook to negative before then.