Finance Minister Malusi Gigaba. File Image
JOHANNESBURG - This week's medium-term  budget policy statement (MTBPS)  is expected to come  under far greater scrutiny  than usual, as rating agencies  look for signs of fiscal slippage  in Finance Minister Malusi  Gigaba’s maiden budget speech  at a time of dwindling revenue  and funding prospects.

The co-head of fixed income  at Investec Asset Management,  Nazmeera Moola, on Friday  said that there was little sign  that Gigaba had the stomach  to significantly cut expenditure  in coming years, without meaningful  fiscal consolidation.

“Both Eskom and Transnet  appear to be running short on  liquidity, but it is hardly surprising  that these companies  are unable to access financial  markets locally. It would be difficult  to justify investing further  pension savings in the debt of  institutions with questionable  governance,” Moola said. 

The rating agencies have  highlighted the slow pace of  economic growth as a weakness  to the country’s sovereign rating.

After identifying supply  bottlenecks and much-needed  reforms in South Africa’s  highly concentrated economy,m S&P Global Ratings assessed  the delivery of reform as piecemeal  to date. 

Adding further  pressure on the fiscus is that  tax collections have undershot  Treasury’s February projections.

The government had previously  projected an increase in  gross tax revenues of 10.6 percent  in the current fiscal year,  relative to the previous fiscal  year. However, currently, gross  tax revenues are falling short  and are only tracking at 6.1 percent  on a yearly basis.

Mamello Matikinca, a senior economist at FNB, said  proposals for the expenditure  outlook would be among the  most closely watched topics,  particularly funding and sustainability  proposals for failing  state-owned enterprises (SOEs).

“We deem it unlikely that  any mention of full or even partial privatisation will be made,  and the big question will be how  the Treasury deals with funding  the energy department’s  nuclear ambitions.”

“We think the mini-budget will  do enough to stave off another  credit rating this year, but our  core view is for another leg  down in mid-2018 PPI, tourism,  land transport is the second  tier data due next week (this  week),” Matikinca said.

President Jacob Zuma’s last  week’s cabinet reshuffle gave  rise to speculation that it was  premised to secure a R1 trillion  nuclear deal with reports suggesting  that Russian nuclear  agency Rosatom is the front  runner to win the contract. 

Former Eskom head honcho  Brian Dames last week told parliament  that there was no need  for new nuclear stations to be  built. “We have no need for it.

Secondly, I don’t think we can  afford it,” Dames insisted.  Carlos Teixeira, a research analyst at Credit Suisse, said  the case for further credit downgrades  of the sovereign had  strengthened since agencies  last acted.

“In our view, potential GDP  growth has declined, structural  reforms are absent, and institutional  decay has continued.

So despite what is likely to  be poor headlines from the  MTBPS, we think that the credit  rating agencies will remain on  hold this year,” Teixeira said.

Moody’s, in its last credit  opinion on South Africa issued  in August, warned that downward  pressure could develop  if liquidity pressures begin to  re-emerge at SOEs that would  elicit pronounced government  intervention, be it through  the activation of guarantees  or other measures. 

The rating agency also said the future trajectory of the rating would  depend on the government’s  success in safeguarding South  Africa’s institutional, economic
and fiscal strength.

Gigaba had earlier promised  that he will use the MTBPS to  elaborate on how the government  plans to fund the cash-strapped  South African Airways  to stay afloat. 

Kamilla Kaplan, an economist  at Investec, said achieving  a stabilisation of debt ratios  would partly rely on addressing  the sizeable fiscal risks associated  with the realisation of  contingent liabilities and/or  recapitalisation of SOEs.