Business

Business: Runaway debt risks sending SA over a fiscal cliff, warn Fitch and Moody’s

Last updated on September 11th, 2021 at 02:41 pm

Fitch Ratings and Moody’s Investor Services warned on Friday that the country risked going over a fiscal cliff following Finance Minister Tito Mboweni’s Supplementary Budget last week, which left both rating agencies unimpressed.

Fitch said the government’s intention to stabilise debt levels within four years was unlikely to be achieved. Fitch’s head of Middle East and Africa sovereigns, Jan Friederich, said the government’s expectation that debt would peak at 87.4percent of gross domestic product (GDP) in 2024 was “optimistic”.

Friederich said the persistent challenges to reducing expenditure, boosting growth and insulating public finances from struggling state-owned enterprises, and the impact of Covid-19, would make it hard to stabilise debt in the medium term.

“This would require sufficient fiscal consolidation to achieve a primary Budget surplus in that year, which would be South Africa’s first since 2008, towards the end of the commodity boom,” Friederich said.

Mboweni said gross national debt was projected to be close to R4trillion, or 81.8 percent of GDP, by the end of this fiscal year.

Mboweni said the Budget deficit would rise to R761.7bn, or 15.7percent of GDP, more than the 6.8percent projected in the Budget in February.

Despite this the government intends to borrow about $7billion (R120.76bn) from international financial institutions to support its response to the Covid-19 pandemic. Gross tax revenue for this fiscal year was revised down from R1.43trln to R1.12trln due to a sharp fall in tax revenue.

The government expects to miss its tax target for this year by more than R300bn or 6percent of GDP.

It aims to cut expenditure by R230bn within the next two years, and implement additional cuts complemented by small tax-raising measures.

Friederich said the planned expenditure cuts were ambitious, not least because they would significantly weaken the economic recovery, which could result in credit ratings downgrades deeper into sub-investment grade.

Fitch downgraded South Africa’s sovereign debt with a negative outlook in April on a lack of a clear path towards debt stabilisation and the expected impact of the Covid-19 pandemic on public finances and growth.

“A continued rise in government debt/GDP and failure to formulate a clear and credible path towards stabilising the government debt/GDP ratio could lead to negative rating action,” Friederich warned.

Moody’s also warned that the country risked going over a fiscal cliff, as its economic metrics remained shaky.

Moody’s said the government’s target to stabilise its rising debt would be particularly difficult to achieve in the medium term, as debt levels had escalated beyond control.

(IOL)

Albert Echetah

Recent Posts

Mauritius Reopens Social MediaAccess in Response to PublicPressure

Mauritius on Saturday overruled its decision to prohibit social media until the election onNovember 10th which was caused by a…

November 5, 2024

UAE Crown Prince Arrives in Ethiopia for WorldWithout Hunger Conference

The UAE’s Crown Prince of Abu Dhabi, His Highness Sheikh Khaled bin Mohamed bin Zayed AlNahyan was in Addis Ababa…

November 5, 2024

Zimbabwe’s rich (Mbingas) linked to state looting

Gilbert Machokoto, a former teacher, said that setting up a business in the late 1980s, shortlyafter Zimbabwe's independence, was ‘like…

November 4, 2024

Historic Shift in Botswana as PresidentConcedes to Opposition Victory

Following elections in which the party that had ruled the diamond-rich nation for almost 60years suffered a historic setback. Botswana's…

November 4, 2024

Lightning Strike at Uganda Refugee CampClaims 14 Lives, Including Children

A lightning strike at a refugee camp in Uganda kills 14 people including children with 34 othershospitalized. The incident happened…

November 4, 2024

From television hopeful to red carpet royalty: Kuhle Adams’ journey frompresenter to South Africa’s biggest awards

From TV hopeful to red carpet royalty, Kuhle Adams' journey is a remarkable story of talentand perseverance. Beginning as an…

November 3, 2024

This website uses cookies.