JOHANNESBURG – Treasury now expects widening deficits resulting from the Eskom income statement support being greater than under-spending elsewhere. The main fiscal deficit is expected to widen to 4.7 percent of gross domestic product (GDP) in the 2019/20 financial, before narrowing to 4.3 percent in the 2021/22 financial year.
The self-imposed spending ceiling will be breached and the debt to GDP ratio has been lifted slightly to 58.9 percent – from 58.5 percent previously – and is expected to peak at 60.2 percent in 2023/24. The government also experienced a marked deterioration in contingent liabilities.
The budget does not change our expectation that Moody’s will change the government’s sovereign rating to a negative outlook. All key fiscal metrics are worse than Moody’s anticipated late last year and the expenditure ceiling has been breached.
On the positive side, Eskom support has taken on the form of income statement support with strict conditions surrounding the implementation of a turnaround plan, as opposed to government taking over R100 billion in liabilities on its balance sheet – as was widely speculated prior to the speech.
Excluding Eskom support, spending cuts have also demonstrated a commitment from the government to get its house in order.