Budget 2020: Moody's likely to downgrade SA, says economist

29 Février, 2020, 07:56 | Auteur: Anatole Charbonneau
  • South African Finance Minister Tito Mboweni said the government would negotiate with labour unions on how the pay cuts could be achieved

Deciding against tax increases, the Treasury said it planned to reduce non-interest expenditure over the next three years, including a proposed 160.2 billion rand ($10.5 billion) cut in public sector wages.

Treasury's unexpected decision to cut rather than raise taxes may help SA avoid slipping into a recession this year, a scenario which economists believed was possible if taxes were higher and load-shedding continues as Eskom carries out intensive maintenance to fix its neglected power plants (see cover story on p.26).

"Government will do whatever it takes to ensure a stable electricity supply".

There was likewise little detail provided around the Sovereign Wealth Fund, which the minister said would be created with a target capital amount of R30-billion.

"There´s lots of cleaning-up things we can do", Mboweni told reporters in a pre-budget news conference.

The government budget deficit now stands at 6.8 percent of gross domestic product (GDP).

South African political analyst Daniel Sile said Mboweni had presented a "credible yet politically risky budget".

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In addition, if government and the unions wage negotiations become as disruptive as in previous rounds, then it is possible that the country's economic growth may enter a recession.

South Africa's main opposition party, the Democratic Alliance (DA), blasted the government for "wasting money" on state-owned enterprises.

An economics lecturer at Stellenbosch University, Nic Spaull, said that the cuts to personal income tax may make these discussions more hard.

Moody's is the last of the top three agencies to rate the country's debt at investment level, and it is expected to review the rating in March.

Repeated bailouts to state-owned entities over the past decade - most notably to Eskom and flag-carrier South African Airways - have drained state coffers.

Finance minister Tito Mboweni has abandoned any attempt to hang on to South Africa's last investment-grade credit rating, with a budget that bluntly acknowledged debt will not stabilise over the next few years and unexpectedly eased the tax burden on individuals in a desperate attempt to resuscitate the flagging economy.

"Lower revenue forecasts mainly reflect lower GDP growth forecasts of just 0.9% in 2020 rising to a still weak 1.6% in 2022, along with revised assumptions about the effect of nominal GDP growth on government revenue".

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