Credit ratings agencies have remained unconvinced by Finance Minister Tito Mboweni's Budget review, expressing concern over South Africa's rising debt levels. Mboweni last week said the national gross loan debt would increase from R3.95 trillion in the current fiscal year to R5.2trln in 2023/24.
The South African government's borrowing requirements are expected to remain well above R500 billion a year, with the debt stabilising at 88.9 percent of gross domestic product (GDP) in 2025/26. However, the government now expects to record a consolidated Budget deficit of 14 percent of GDP compared to its October forecast of 15.7 percent.
Moody's on Friday said the slightly lower deficits would not prevent the debt from rising as downside risks remain elevated over the public sector wages and support to state-owned enterprises (SOEs).
The ratings agency downgraded South Africa's sovereign credit ratings status deeper into junk territory in October with a negative outlook.
Moody's senior credit officer Lucie Villa said they still expected that the government's debt burden would rise to reach 100 percent of GDP by the 2024 financial year.
Villa said the pace of reduction in deficits was slower, given the government's decision to withdraw R40bn of tax-raising measures and a milder recovery in revenue.
“Although we have also revised down our deficit forecasts, we continue to expect a slower pace of fiscal consolidation and wider deficits than the government based on our expectations of higher primary spending and interest spending,” Villa said.
“Moreover, risks remain elevated that the government's debt burden and affordability deteriorate significantly more rapidly than our baseline.”
Villa also said uncertainty over the pace of the economic recovery and the capacity of the government to limit spending remained elevated.
The economy is expected to rebound by 3.3 percent this year, following a 7.2 percent contraction in 2020 and average 1.9 percent in the outer two years.
However, Fitch Ratings expressed
similar sentiments about the rising debt, saying the debt challenge remained despite stronger revenues.
The government expects to collect R1.21trln in taxes during 2020/21, which is an improvement of about R100bn from October estimate, but about R213bn less than February Budget expectations.
Fitch's head of Middle East and Africa sovereign ratings Jan Friederich said curbing wage growth would be politically challenging, especially in the local elections calendar year.
Fitch also downgraded the country's credit rating from BB to BB- with a negative outlook last year.
“Government debt will continue to rise in the medium term, posing downside risks that are reflected in the Negative Outlook on the sovereign's ‘BB-' rating,” Friederich said.
“Meanwhile, the potential need to extend further financial assistance to troubled SOEs, including the ailing national electricity company Eskom, presents material downside risks to public finances.”