South African government debt could rise by 40 percentage points over the next three years as strong, widespread fiscal pressures and persistently low economic growth weigh on the nation\u2019s credit profile, according to Moody\u2019s Investors Service.<\/p>\n
That would push government debt as a percentage of gross domestic product well over 100% and much higher than the 87.4% peak the Treasury projects for 2023-24 under its active management scenario.<\/p>\n
Increased spending driven by a R500 billion ($29.6 billion) stimulus package to shore up the economy against the impact of the coronavirus pandemic will widen the budget deficit to 15.6% of GDP and take debt up to 89.9% this fiscal year, Moody\u2019s analysts led by Paris-based Lucie Villa said in a credit opinion published Thursday.<\/p>\n
That\u2019s despite the government\u2019s efforts to fund the package by reprioritising spending and compares with the Treasury\u2019s projection of 81.8%.<\/p>\n
Africa\u2019s most industrialised-economy will shrink by 6.5% this year due to the virus and strict lockdown measures that halted almost all economic activity for five weeks from 27 March, Moody\u2019s said.<\/p>\n
That compares with its\u00a0previous forecast\u00a0for a 2.5% contraction and the government\u2019s projection of a 7.2% drop in output.<\/p>\n
There is also a risk of \u201cfurther fiscal drains\u201d from state-owned companies as the virus constrains activity.<\/p>\n
Lower electricity demand will reduce cash flows and add to the funding needs of Eskom Holdings SOC Ltd, Moody\u2019s said.<\/p>\n
South Africa lost its last investment grade assessment on 27 March, when Moody\u2019s downgraded its foreign- and local-currency debt to Ba1.<\/p>\n
The negative outlook on the assessment means that \u201ca rating upgrade is unlikely in the near future,\u201d said the ratings company in Thursday\u2019s report.<\/p>\n