JOHANNESBURG – Finance Minister Tito Mboweni’s upcoming Medium-term Budget Policy Statement (MTBPS) is perhaps the most important for South Africa to date. With a resurgence of load- shedding, crisis-level unemployment figures, and economic growth teetering between zero and 1 percent, the government is quickly running out of time and options to address the country's challenges.
At the time of February’s Budget, real growth in gross domestic product (GDP) was projected at 1.5 percent, up from 0.8 percent in 2018. However, the economy unexpectedly shrank by 3.1 percent in the first quarter of 2019, and although a rebound was recorded in the second quarter, we now expect real GDP growth for the year to come in at an underwhelming 0.6 percent.
The difference between the forecast and actual economic growth figure translates into a tax receipt shortfall of some R60 billion for the tax year ending March 2020. Mboweni will be hard-pressed to find ways to offset this deficit.
And with Moody’s set to deliver its next assessment directly after the MTBPS on Friday, the stakes are incredibly high. Moody’s has given South Africa the benefit of the doubt for a number of years – arguably far too long. If you add South Africa’s 6 percent Budget deficit forecast and state-owned enterprise (SOE) debt obligations to South Africa’s debt-to-GDP number, we are comfortably in sub-investment grade status.
However, although there is enough reason for Moody’s to downgrade South Africa's investment rating, its most recent comments indicate that it will retain South Africa's rating for the time being.