While there are a number of positive reforms in finance minister Tito Mboweni’s medium-term budget policy statement (MTBPS), some of the key provisions are likely to face significant push back, says Dawie Roodt, chief economist of the Efficient Group.
“There is little to no chance that civil servants or their trade unions are going to buy into finance minister Tito Mboweni’s idea of capping or even reducing salaries in order to reduce government spending,” Roodt said.
He added that while several ideas mooted by Mboweni in his mid-term budget speech were good – they were ten years too late.
“After listening to the minister, it is clear that economic growth is going to remain dismal, unemployment is going to increase, and government debt is going to grow by leaps and bounds, closely followed by a growth in unemployment statistics,” he said.
“All Mboweni really achieved was to create the impression that he was honest enough to share the bad news with the country as a whole in the hope that he would be given some breathing space until he presented the main budget in February of 2020,” Roodt said.
Roodt added that Mboweni may not have done enough to persuade Moody’s from downgrading South Africa’s sovereign credit rating.
“While it is possible that ratings agency Moody’s might keep South Africa’s sovereign debt at investment grade it is highly likely that they will change the outlook to negative after hearing what the minister had to say,” he said.
Moody’s is set to comment on the country’s creditworthiness on 1 November.
It is the only rating agency still to rate South Africa at investment grade, with the country rated below investment grade since 2017 by Standard & Poor and Fitch.
Should Moody’s also downgrade South Africa to junk status, the country would no longer be eligible for inclusion in debt gauges such as Citigroup Inc’s World Government Bond Index (WGBI).