FIN24 / 01 NOVEMBER 2019 - 23.43 / HELENA WASSERMAN
On Friday night, Moody downgraded the outlook for its credit rating of the South African government from “stable” to “negative”.
This is the final step before it strips South Africa of its “investment grade” Baa3 long-term foreign-currency and local-currency issuer rating, which will leave it at “junk”.
(Picture: Supplied) ~ Photo Supplied
"The negative outlook signals in part Moody's rising concern that the government will not find the political capital to implement the range of measures it intends, and that its plans will be largely ineffective in lifting growth," the agency said in a statement.
While government has some plans to address problems like unemployment and low growth, it has faced obstacles "in part from outstanding vested interests, in part from the social and political challenge of imposing measures that are initially likely to be detrimental for parts of the population", Moody's said. It gave the example of the new mining charter, which is unlikely to boost investment in the sector given persisting regulatory uncertainty amid ongoing appeals against some provisions of the charter.
"While high unemployment, income inequality and the social and political challenges they imply for policymakers are long-standing features in South Africa, the obstacles that they pose to the government's plans to raise potential growth and contain fiscal deficits are proving more severe than expected a year ago," Moody's added.
"Acute financial stress for state-owned enterprises, in particular Eskom, continues to require sizeable ongoing support from the government. The development of a credible fiscal strategy to contain the rise in debt, including in the 2020 budget process and statement, will be crucial to sustain the rating at its current level."
The Moody's announcement follows the medium-term budget policy statement, which was tabled this week by finance minister Tito Mboweni and painted an extremely grim picture of government finances.
Government’s debt-to-GDP ratio, which as recently as two years ago was at 50.6%, is currently 61% and will grow to above 71% of GDP by 2022. Government is forking out billions of rands in bailouts for a bleeding Eskom and other state-owned entities, while tax revenue this year will be more than R50bn lower than expected as business and households struggle in a weak economy.
"The current rating rests on the government's ability to quickly develop a credible strategy to halt and ultimately reverse the rise in debt. Such a strategy has not been forthcoming to date," Moody's warned on Friday night.
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