JOHANNESBURG - Rating agency Moody’s on Thursday said that South Africa’s pressure to increase public spending in response to rising poverty would further complicate fiscal consolidation, compounding the duress on the fiscus strained by underperforming state-owned enterprises.
Zuzana Brixiova, a senior Analyst at Moody’s, in a research note said any slowdown in projected fiscal consolidation as a result of increasing social spending risked further weighing on business confidence, deterring investment and weakening potential growth.
“We expect that in the run-up to general elections in 2019, spending pressures associated with higher poverty, combined with weak growth, will present further challenges to fiscal consolidation efforts beyond those already posed by underperforming revenues and financially weak state-owned enterprises,” Brixiova said.
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Last month, data from Statistics South Africa (Stats SA) revealed that South Africa’s weak economic growth, high unemployment, greater household dependency on credit and policy uncertainty condemned 30.4 million into poverty between 2011 and 2015.
The data further showed that more than 13 million South Africa fell into extreme poverty category living on less than R441 per month, up from 11m people in 2011. The stats came on the heels of Stats earlier in the year revealing that unemployment remained at the highest level since the global financial crisis at 27.7 percent. Brixiova said the surge in poverty, which coincides with slowing growth, reversed a trend of declining poverty since 1994 when the ANC came to power.
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“The government set the elimination of extreme poverty as a key long-term objective of its National Development Plan; to be achieved by 2030. Accordingly, efforts to address poverty, inequality in both income and assets and persistently high unemployment continue to top the ANC’s policy agenda in the run up to general elections in 2019.” The SA Chamber of Commerce and Industry (Sacci) reported on Wednesday that business confidence in South Africa had plunged to its lowest level in more than 30 years as unemployment, political uncertainty and dwindling trade weighed heavily on investor sentiment.
Finance Minister Malusi Gigaba has previously said that the Treasury was committed to fiscal consolidation plans outlined in the 2017 budget and aimed to stabilise the government’s net debt over the next three years at 50% of gross domestic product (GDP). Brixiova said in the run up to the elections the commitment to difficult reforms aimed at promoting growth and consolidating government finances has been weakening.
“Some proposals, such as the recently drafted mining charter, present risks to growth by reducing regulatory stability and further undermining investor confidence. Others, such as reforms of state enterprises, have stalled since 2012 when the report of the Presidential Review Committee on state-owned entities was issued.” The rating agency last month declined to provide a rating review on the country saying that no real major events had taken place since its last review that would require a changed review. Moody’s is the only major credit-rating agency to assess both South Africa’s foreign-currency and rand-denominated debt at investment grade.