By Lehlohonolo Lehana.
S&P Global Ratings has warned that South Africa’s 2021 budget did not focus enough on economic reforms, Reuters reported.
This will make a sustained rebound in its gross domestic product unlikely, analysts from the ratings agency said in a webinar on Tuesday (9 March).
“There’s been some new momentum on pushing structural reforms but it’s still reasonably thin, and again the budget was more a sort of fiscal control exercise rather than a structural reform exercise,” said S&P analyst Ravi Bhatia.
“So there is no reason to really expect a big, sustained rebound in the growth trajectory going forward. So that is concerning.”
S&P is the latest of the three major rating agencies to comment on South Africa’s budget, with all three highlighting concerns with the government’s ability to consolidate and implement its proposed reforms.
In November 2020, Moody’s cut the nation’s foreign- and local-currency ratings to Ba2, two levels below investment grade, from Ba1. The outlook remains negative.
In the same month, ratings agency Fitch cut South Africa’s foreign- and local-currency ratings to BB-, three levels below investment grade, also with a negative outlook.
Moody’s Investors Service said that slightly lower deficits won’t prevent debt rising in the country, as downside risks remain elevated.
In its 24 February budget, Treasury slightly lowered its deficit forecasts in response to higher revenue than expected in October and a milder 2020 GDP contraction.
“However, these adjustments are modest and will not prevent government debt burden rising over the next three years. Moreover, uncertainty over the pace of the economic recovery and the capacity of the government to limit spending – especially interest payments and support to state-owned enterprises – remains elevated,” said Lucie Villa, senior credit officer at Moody’s.
For the financial year ending March 2021 (FY2020), the government now expects to record a consolidated budget deficit of 14% of GDP, compared to its October forecast of 15.7%.
A less severe fall in revenue of 11% from 16% forecast in October is the main driver, although this still implies a year-on-year revenue loss of about two percentage points of GDP.
The unexpected rebound in value-added tax (VAT) receipts since the fourth quarter of 2020 and higher-than-anticipated corporate tax receipts were largely responsible for this revenue out performance, said Villa.
Moody’s said that while it has revised down its deficit forecasts following the release of FY2020 estimates, “we continue to expect a slower pace of fiscal consolidation and wider deficits than the government based on our expectations of higher primary spending – especially wages – and interest spending”.
It said that the revisions slow the pace of debt accumulation compared to its previous projections, but it still expects the government’s debt burden will rise to reach 100% of GDP by FY 2024.