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What needs to be done<\/strong><\/p>\n Els compiled a brief list of what needs to be done to appease the market, and at the very best case, keep Moody’s at bay for at least a little while.<\/p>\n But, to avoid downgrade, do more…<\/strong><\/p>\n What will likely be done…<\/strong><\/p>\n The Budget deficit climbed to 6% of GDP last year, with extra spending on Eskom adding strain to the public purse, which is already stretched.<\/p>\n “Treasury has not been able to rein in the budget deficits over the last few years, so it is really now or never.<\/p>\n “We are on the verge of a Moody\u2019s rating downgrade, and if we don\u2019t stabilise the deficit and get spending under control, they will downgrade us,” Els said.<\/p>\n South Africa is reeling from five consecutive years of less than 1% average GDP growth, which has harmed the deficit and the debt burden.<\/p>\n “We pay more than R200 billion a year on interest payments alone \u2013 which is more than the annual budgets of health, education and police services,\u201d said Els, adding that South Africa needs annual economic growth of 2.5-3% to stabilise the debt ratio and prevent a debt trap.<\/p>\n Debt to GDP has shot up from 26% in 2009 to 60%, and this is making it difficult to service debt, with interest on debt already 11% of total expenditure, the economist said.<\/p>\n While there will be an attempt to reduce additional spending, cutting back on the wage bill would be advantageous; however, this is not likely.<\/p>\n “This will be difficult to pull off politically and would need to be negotiated with unions, but potentially it could be a big game-changer: just limiting wage bill growth to 4% could save R100 billion. While the intention in the Budget must be on the spending side, I am doubtful that the Finance Minister will be able to do enough,” said Els.<\/p>\n As a result, Els expects a Moody\u2019s credit rating downgrade in March 2020. “I expect a downgrade to junk status \u2013 and thus exit from the World Government Bond Index (WGBI),” he said.<\/p>\n\n
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