Moody’s sees the government’s room to manoeuvre as extremely constrained. File Photo: IOL

JOHANNESBURG – South Africa would try to absorb the extra Eskom costs with new revenue or expenditure measures in the next mid-year budget exercise, with departmental budget cuts being one option, Moody’s Investors Service said on Thursday. 

“In any event, Moody’s sees the government’s room to manoeuvre as extremely constrained,” the ratings agency said.

Moody’s, the only remaining rating agency that still has the country’s sovereign debt above junk, has in recent months displayed its ire over the government’s inability to rein in debt, particularly with regard to Eskom.

It said on the spending side, the government had already embedded in its original budget several containment measures, including related to the wage bill, making further restraint difficult. 

The 2019 budget had raised contingency reserves to R13 billion for fiscal 2019 and lowered those for fiscal 2020 to R6bn to accommodate financial support requests from the broader state-owned enterprises, including South African Airways and Denel, leaving limited room to absorb Eskom’s additional support. 

The agency said that on the revenue side, weak tax performance in the last fiscal year coupled with their expectation that economic growth would remain low at 1 percent in real terms in 2019 left  limited room for adjustment on the revenue side.

Moody’s expected  that South Africa would be forced to an upward revision in both the government spending ceilings and the fiscal deficits in the next Medium Term Budget Policy Statement. It said additional support for Eskom remained an additional risk to South Africa’s fiscal strength. 

“No clear strategic turnaround plan agreeable to all stakeholders has emerged yet, fuelling risks for the government of having to provide additional support.”