Tito Mboweni
Tito Mboweni

Fitch, economists remain unconvinced following Ramaphosa's SONA

By Siphelele Dludla Time of article published Feb 17, 2020

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JOHANNESBURG - President Cyril Ramaphosa has set Finance Minister Tito Mboweni an unenviable task to unpack the details of how South Africa plans to get out of its low-growth path.

After outlining plans to deal with the energy crisis and commitments to government spending cuts in the State of the Nation Address (Sona) on Thursday, Ramaphosa said Mboweni would provide flesh to the skeleton in his Budget Speech later this month.

But Fitch ratings agency remained unconvinced by Ramaphosa’s plans to deal with the prevailing crucial issues of economic under-performance. Fitch said the impact of the growth-enhancing measures announced by Ramaphosa would be limited, and would accumulate only over the long term.

“The scale of the challenges outlined in the South African president’s State of the Nation Address highlights factors behind Fitch Ratings’s negative outlook on the South Africa sovereign rating of ‘BB+’,” it said.

“Ramaphosa’s speech promised progress but offered only partial detail on key policy areas, including stabilising the electricity sector, improving public finances, accelerating growth and land reform.”

Fitch Ratings downgraded South Africa’s sovereign credit rating to junk in 2017.

The ratings agency also said calls to move R250billion of Eskom’s debt to the Government Employees Pension Fund and state development would negatively affect those state institutions shouldering the debt.

“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,” it said.

South Africa’s fiscal metrics have deteriorated as a result of continuous government borrowings to bail out failing state-owned enterprises (SOEs).

Chantal Marx, head of investment at FNB Wealth and Investment, said they would be looking out for any additional provisions to SOEs and adjustments to the wage bill in Mboweni’s Budget.

“Given that the public sector wage growth agreement ends in the 2020/21 financial year, we expect that any meaningful adjustments to the wage bill will likely only take place there- after,” Marx said.

“Additional savings from the expenditure side will most likely come from in-year adjustments. We expect the government’s expenditure growth to be in line with what was proposed in the 2019 Medium-Term Budget Policy Statement,” she said.

The economy is forecast to grow less than 0.5percent this past year.

The country’s deficit is at 5.9percent of gross domestic product (GDP).

The national debt exceeded R3trillion in 2019. It is expected to rise to R4.5trillion in the next three years, and will most likely exceed 70percent of GDP by 2022/23.

The government has embarked on negotiations with the public sector unions to reduce the wage bill, which accounts for a third of consolidated government expenditure.

Investec economist Kamilla Kaplan was also not too optimistic that the Sona would boost investor and business confidence.

Kaplan said the Sona recognised the fiscal predicament of unsustainably high-debt levels, revenue under- performance and the unfavourable Budget composition.

“Policy uncertainty has not been alleviated in total, and it is likely to continue to undermine confidence. Specifically, the regulatory nature of expropriation without compensation has not been detailed,” Kaplan said.

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