JOHANNESBURG - Finance Minister Tito Mboweni is set to use his medium term budget policy statement (MTBPS) on Wednesday to assure the market and ratings agencies that the government was firmly in control of its funds.
Mboweni, who ascended the hot seat last year, would want to send a message that the country would be able to meet its debt obligations and contain the
Investec economist Kamilla Kaplan said the MTBPS would confirm a deterioration in fiscal metrics on weak growth, revenue shortfalls and increased spending pressures
“The weaker than expected GDP (gross domestic product) growth outcome, the accompanying revenue underperformance and increased spending pressures, associated with the financially distressed state-owned enterprises, are projected to yield a consolidated budget deficit of 6.1 percent of GDP, instead of the 4.5 percent deficit forecast in the 2019 Budget,” Kaplan said. “Debt levels are seen to tip 60 percent of GDP versus the 56.2 percent National Treasury forecast.”
Mboweni’s unenviable task in balancing the interests of the country with those of political allies will not be easy as he has to prioritise support for restructuring of the energy sector, which has been the biggest bottleneck to the economy.
Eskom’s R450 billion debt remains the immediate risk to the country’s fiscus and poses a serious threat to the economy and the public finances.
Government hopes that the proposed unbundling of the troubled power utility into three units would halt Eskom from digging a hole into the country’s balance sheet and enable it to raise capital from financial markets.
Mboweni microeconomic reforms strategy put forward the essentials needed to lift growth to above 2 percent over 10 years and generating 1 million jobs.
The country’s revenue collection has been poor despite the introduction of the 1 percent hike in value-added tax (VAT) as the tax base continues to shrink.
Analysts anticipate the South African Revenue Service will record a R60 billion shortfall for the tax year ending March 2020, up from R48 billion last year.
Head of capital markets research at Intellidex, Peter Attard Montalto, said there was a credible macro assumptions in the three-year forecast window, but they expect National Treasury to stretch things to get debt to GDP to stabilise.
“We see nothing particularly occurring in terms of new taxes given South Africa is over the peak of the Laffer curve. On expenditure we see around 2.5 percent in cuts vs budget
pencilled in levels – anything less than this would not be credible, but anything more than this also would not be credible given its impact on the wage bill,” Montalto said.
Mboweni’s plan to narrow the budget deficit and stabilise the national debt-to-GDP ratio, which is expected to widen markedly to around 6 percent from 4.5 percent anticipated in February’s main budget, will be closely monitored by ratings agencies.
Moody’s Investor Services has been generous to South Africa’s woes despite a subdued economic climate, weak growth and a high level of uncertainty.
Moody’s is the only major ratings agency to rate South Africa’s debt at investment grade, following downgrades to junk by S&P Global Ratings and Fitch Ratings in 2017.
Another Investec economist Lara Hodes said there was a risk that Moody’s would downgrade South Africa’s credit outlook to negative within the next 12 months.
“This negative outlook on SA’s Baa3 rating would mean South Africa has up to two years to repair its government finances in order to avoid a downgrade into sub-investment grade category of Ba1 and below,” Hodes said.