CAPE TOWN - South Africa is set to enforce jarring spending cuts of R25 billion, said Finance Minister Malusi Gigaba on Wednesday.
This implementation was revealed in Cape Town’s Parliamentary house.
In addition to this wide-reaching slash of spending costs, Gigaba further revealed plans to raise revenue by R15 billion in next year’s budget.
Gigaba said that these plans were in a desperate bid to constrain growing debt, of which has been flagged by ratings agencies for the past few years.
South Africa has already suffered junk status after being downgraded by at least two ratings agencies. Further downgrades are expected on Friday, as the country awaits two consecutive credit ratings.
Gigaba said that the extra R40 billion (0.8% of the GDP) would be utilised to tackle rising public debt. If not addressed now, this could escalate beyond 60% of the GDP by 2022.
In addition to this, South Africa’s debt is estimated to be resting on a R97 billion crisis.
Eager economists and respondents in a Bloomberg survey expressed their calculation on the expected ratings.
"The budget will provide the fiscal detail that was lacking in the 2017 medium-term budget policy statement, which is needed in assessing South Africa’s creditworthiness. The likelihood has increased for South Africa to lose its remaining investment-grade ratings", said Annabel Bishop, the chief economist at Investec Bank.
If both companies were to cut, rand debt would fall out of measure. This includes Citigroup World Government Bond Index which will incite outflows of R80 billion to R100 billion, said Citigroup economist, Gina Schoeman.
Meanwhile, ten of the sixteen respondents in the Bloomberg survey however said that Moody’s will not lower its assessment.
Gigaba was also reported to be conducting reassurance meetings with the ratings agencies, S&P and Moody’s on November, 5.
- BUSINESS REPORT ONLINE