The upcoming tabling of South Africa’s Budget is likely to be “more important that ever” due to stubbornly low economic growth, the impact of power cuts and the heightened risk of a credit rating downgrade to junk by Moody’s Investors Service, according to a BNP Paribas South Africa economic.
Finance Minister Tito Mboweni is due to present the Budget in Cape Town on the afternoon of Wednesday, February 26.
In a Budget preview on Monday, Senior Economist Jeffrey Schultz said he expects to see a renewed push to cut the state’s wage bill, including the announcement of measures to freeze the salaries for top earners and curb incentives.
Ratings agencies as well as international lenders have repeated raised the urgent need for the government to institute reforms, act on cash-bleeding state-owned entities and stabilise the bulging public wage bill.
“With the primary balance adjustments likely to fall short of expectations and a weaker nominal GDP growth outlook, we think a decision by Moody to downgrade South Africa’s last remaining investment-grade credit rating is possible,” said Schultz. He later said a downgrade may be inevitable.
The Budget will be delivered at a time when two of the country’s largest state-owned enterprises, Eskom and SAA, continue to pile pressure on the the economy.
SAA, which was placed in business rescue in late 2019, last week announce thecancellation of a number routes in a bid to save cash.
Eskom, meanwhile, is faced with a mountain of debt, the majority of which is government-backed. The Congress of South African Trade Unions has proposed cutting the utility’s debt by R250bn by using funds from the Public Investment Corporation and other state institutions. Cosatu said last week that its government and representatives of business had “in essence” accepted the fundamentals of the plan. Ramaphosa may announce further details in his State of the Nation address on Thursday.
Although the economy may be in the doldrums, some level of optimism in the medium-term could be forthcoming in the form of institutional reforms and corruption prosecutions. But several events set to take place later in the year may again contribute to an increase in political noise, said Schultz, such as the upcoming ANC national general council.