Parliament - Finance Minister Tito Mboweni's most crucial task when he presents the national budget on Wednesday is to spell out measures to rein in the country's ballooning debt, Democratic Alliance (DA) finance spokesman Geordin Hill-Lewis said on Monday.
Hill-Lewis said the minister must address the immediate fiscal crisis created by the national debt burden, declining revenue, the mounting public wage bill and ongoing bailouts for embattled public enterprises.
"If this does not change in a very significant way, then South Africa will lose its only remaining investment-grade credit rating and will not avoid a solvency shock," he said, referring to Moody's upcoming review of South Africa's sovereign credit rating.
Hill-Lewis said there was a clear gap between Mboweni's stern warnings that South Africa was heading for a debt trap and that the public wage bill must be trimmed, and the actual reality of it growing.
"Despite the stern commitments in last year’s budgets, national debt, measured as net loan debt, is set to increase to a staggering R4.2 trillion, or 67.5 per cent of GDP by 2022/23. That is if there are no further revenue shortfalls, an increasingly unlikely outcome.
"Therefore, the only real important test of this budget’s credibility is the seriousness of the plans presented to rein in national debt, cut the public wage bill, and grow the economy. That is how we will judge the minister’s speech."
Moody's is the last of the big international ratings agencies to have maintained South Africa at investment grade.
In November it downgraded the outlook on the credit rating from stable to negative. This is the last step before stripping the country of its Baa3 long-term foreign-currency and local-currency issuer rating.
The Banking Association of South Africa (BASA) picked the same priority for the finance minister but added a call to implement reforms to spur the stalled economy into growth.
"In the 2020 budget Finance Minister Tito Mboweni must set out a programme of action that will reduce South Africa’s unsustainable debt burden; lead to the implementation of reforms to enhance the economic growth necessary to tackle South Africa’s unemployment crisis and defend our last investment grade credit rating," it said.
It said the state of the nation address delivered by President Cyril Ramaphosa on February 13 had positive elements but these were overshadowed by political rhetoric and proposals that seemed misplaced in the country's current economic and fiscal state.
"It is up to the Finance Minister to prioritise what can be done and what should not be done - within the limits of what we can afford - so we do not burden future generations with even more debt."
BASA said Mboweni must do all he can to prevent a downgrade to junk status.
If South Africa’s credit rating is downgraded, the credit ratings of all the country’s banks will also be downgraded. South African banks’ credit ratings cannot be higher than that of the country. A poor credit rating increases the cost of funding for banks which in turn increases borrowing costs for businesses, consumers and government," it warned.
Losing the country's last remaining investment grade rating would mean that all South Africans who borrow money will pay more interests, but it will also reduce the ability of banks to extend credit to entrepreneurs, which will hamper job creation.
"Those that dismiss the importance of ratings agencies often do not understand the economic realities of the global capital markets, from which South Africa has to borrow to keep the economy and government services running, because the country does not have enough savings of its own."
BASA said a downgrade was to some extent already priced into the South African market but a formal announcement by Moody's would mean capital outflows, a weaker rand and higher inflation.
The rand last week hit a four-month low while inflation reached a seven-month high.
BASA also signalled the need for a clear and workable plan to stem the crisis at Eskom, whose ongoing generation woes and debt of R450 billion posed one of the most substantial threats to the economy.
Mboweni is on record as arguing the case for deep structural reforms to prevent further harm to the economy.
The banking association gave its backing to a working document on economic reform released by National Treasury last year and said it was now up to Ramaphosa to bring his cabinet in line to give effect to it.