{"id":347572,"date":"2019-10-21T08:13:46","date_gmt":"2019-10-21T06:13:46","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=347572"},"modified":"2019-10-21T08:13:46","modified_gmt":"2019-10-21T06:13:46","slug":"south-africas-massive-budget-problem","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/finance\/347572\/south-africas-massive-budget-problem\/","title":{"rendered":"South Africa’s massive budget problem"},"content":{"rendered":"

Billions of rands in bailouts for South Africa\u2019s power utility will probably widen the budget deficit to the biggest since the financial crisis, threatening the nation\u2019s remaining investment-grade credit rating.<\/p>\n

With the National Treasury\u2019s medium-term budget due for release toward the end of the month, economists in a Bloomberg survey expect a fiscal gap of 6.1% of gross domestic product for this year as money for Eskom, the public broadcaster and national airline sap resources.<\/p>\n

That\u2019s compared with the Treasury\u2019s 4.5% February estimate and would be the biggest gap since 2010.<\/p>\n

Power shortages and policy uncertainty have damped economic growth and plunged business confidence to multi-decade lows, while the revenue service has struggled to meet tax estimates.<\/p>\n

Finance Minister Tito Mboweni reiterated in July that the bailouts will come at a cost to taxpayers, who have faced a series of tax hikes since 2015, including the first increase in VAT since 1993.<\/p>\n

“We cannot rely on fiscal policy to stimulate the economy,” Lullu Krugel, the chief economist at PwC, said by phone from Johannesburg.<\/p>\n

“If we see a global economic downturn, we don\u2019t have any buffer against it. There\u2019s no chance of spending ourselves out of it like we did in 2008 and 2009.”<\/p>\n

\"\"<\/a><\/p>\n

South Africa\u2019s R128 billion three-year package for power producer Eskom – the utility that\u2019s seen as the biggest risk to the economy – will add to state liabilities and widen the deficit, Moody\u2019s Investors Service said last month.<\/p>\n

It\u2019s the only major ratings company that still assesses the country\u2019s debt at investment grade.<\/p>\n

Junk Risk<\/strong><\/p>\n

Analysts are speculating that Moody\u2019s may cut the stable outlook on the Baa3 rating to negative because of rising debt and lower economic-growth projections, putting the country on the verge of another junk rating.<\/p>\n

A downgrade would leave South Africa without an investment-grade ranking for the first time in 25 years, and see the nation fall out of key debt gauges including the FTSE World Government Bond Index, prompting capital outflows.<\/p>\n

Mboweni\u2019s policy statement needs to “send a signal to rating agencies that the state remains committed to fiscal consolidation,” said Jeffrey Schultz, a senior economist at BNP Paribas South Africa.<\/p>\n

The economy needs non-interest spending cuts of more than 2% of GDP to stabilise debt metrics \u201ctoday\u201d although a 0.5% reduction within a solid macroeconomic plan would make for a credible budget, he said.<\/p>\n

\"\"<\/a><\/p>\n

Weak Growth<\/strong><\/p>\n

The National Treasury has asked government departments to propose how to reduce expenditure in a way that has the least impact on service delivery. It sought cuts of 5% for 2020-21, and 6% and 7% for the next two years. That could be as much as R300 billion over three years.<\/p>\n

Failure to narrow the budget gap could raise debt, including guarantees to Eskom, to more than 70% of gross domestic product in the medium term, said Moody\u2019s. Fitch Ratings Ltd. sees state debt increasing to 68% of GDP by 2021-22 from about 56% now, it said in July.<\/p>\n

Weak economic growth remains a major constraint to the fiscal outlook. A Bloomberg survey of 28 economists sees GDP expanding 0.6% this year, in line with the central bank\u2019s forecasts. That would be the lowest annual rate since 2016.<\/p>\n

“Next year, if the global economy doesn\u2019t hit the brakes too severely, we could get up to 1.5% or thereabout — but the bottom line is if we keep on in this region of 1%-1.5%, it\u2019s not enough, it\u2019s not going to work,\u201d PwC\u2019s Krugel said. \u201cWe need some serious structural changes.\u201d<\/p>\n

\n

Read: Eskom load shedding suspended \u2013 for now<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Billions of rands in bailouts for South Africa\u2019s power utility will probably widen the budget deficit to the biggest since the financial crisis, threatening the nation\u2019s remaining investment-grade credit rating.<\/p>\n","protected":false},"author":59,"featured_media":59427,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11121],"tags":[26],"class_list":["post-347572","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","tag-headline"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/347572","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/59"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=347572"}],"version-history":[{"count":4,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/347572\/revisions"}],"predecessor-version":[{"id":347608,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/347572\/revisions\/347608"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/59427"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=347572"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=347572"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=347572"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}