Budget gets cool reception from Fitch
Credit ratings agency Fitch says the budget tabled by Finance Minister Tito Mboweni highlighted the “severe deterioration” of the country’s finances.
Fitch released a statement on Wednesday evening in response to Mboweni’s budget speech in the National Assembly.
The agency also warned that the continuous bailout of state-owned companies need to shoulder a lot of the blame for the deteriorating economy.
Mboweni announced that Value Added Tax (VAT) will remain at 15%, despite many economists predicting that it would be raised to 16%.
There was also a cut in personal income tax, in a move which also surprised a lot of experts.
The country's national debt is projected to be at R3.56 trillion by the end of 2020/2021, translating into 65.5% of the gross domestic product (GDP).
The deficit is expected to hit 6.3% of GDP this year.
The London-based rating agency said the persistently low GDP growth, combined with bail-outs of state-owned enterprises, are the main reasons the country's economy keeps deteriorating.
"Reforms envisaged by the government are unlikely to significantly improve growth prospects in the medium term. The government has not raised taxes in the 2020 budget, contrary to our expectations, reflecting concerns about the likely impact on already weak economic growth.
Mboweni’s decision to cut public sector wages by R160 billion over the next three years has been met with outrage by trade unions, but Fitch warns that it might not be enough.
"The government projects that even if wage savings materialise, they would be offset by downward revisions to government revenue of around 0.8% of GDP per year since the MTBPS.
"Lower revenue forecasts mainly reflect lower GDP growth forecasts of just 0.9% in 2020 rising to a still weak 1.6% in 2022, along with revised assumptions about the effect of nominal GDP growth on government revenue."
Meanwhile, Econometrix chief economist Azar Jammine says the only agency to have the country at investment grade, Moodey’s Investment Services, could still decide to downgrade the country to junk status.
"This budget speech reduces the chances - slightly - of a downgrade but I think there's a still significant likelihood that we will be a downgrade.
"I think its the global environment that will remain more important as to whether or not even a downgrade is received positively or negatively."