South Africa\u2019s new budget confirms the already-cautious assessment by Moody\u2019s Investors Service that underpins its stable outlook for the country\u2019s credit rating while highlighting key risks.<\/p>\n\n\n\n
\u201cWhat we\u2019ve seen is in line with our expectation of the macroeconomic performance for this year,\u201d said Aurelien Mali, senior credit officer for Moody\u2019s Sovereign Risk Group. <\/p>\n\n\n\n
\u201cWhere there is a difference is in the much lower projection of the revenue in the future, which indicates a fragility that leads to a higher deficit than anticipated,\u201d he said in an interview in Johannesburg on Thursday.<\/p>\n\n\n\n
Moody’s rates South Africa\u2019s long-term foreign debt with a stable outlook at a sub-investment grade Ba2, which it defines as carrying substantial credit risk with speculative characteristics.<\/p>\n\n\n\n
Africa\u2019s most industrialised economy has been badly hobbled by crippling power cuts, logistics constraints, crime, corruption and high levels of unemployment.<\/p>\n\n\n\n
South African Finance Minister Enoch Godongwana told lawmakers on Wednesday the country\u2019s budget deficit would rise to 4.9% of gross domestic product in the fiscal year through March and narrow to 3.6% by 2026-27. Gross debt is seen peaking at 77.7% of GDP in 2025-26, as opposed to February\u2019s forecast of 73.6%.<\/p>\n\n\n\n
Investors reacted positively to the budget news despite the sober assessment, with yields on government debt declining sharply as the rand strengthened against the dollar. <\/p>\n\n\n\n
The ruling African National Congress faces a tough election next year, and Godongwana has been under pressure to take an even softer line on social support.<\/p>\n\n\n\n
Mali said that the forecast for debt to stabilize, and the fact that South Africa\u2019s National Treasury had held the line on spending, were encouraging. But it was important to watch whether the projections were met.<\/p>\n\n\n\n
\u201cWe know that there are social spending pressures and pressure from the SOE sector that will probably affect the budget,\u201d he said, referring to state-owned enterprises that include the struggling power utility Eskom and Transnet. <\/p>\n\n\n\n
\u201cSo, the risk of a bigger deterioration than the stabilisation of the debt has risen.\u201d<\/p>\n\n\n\n