Get more Mail & Guardian
Subscribe or Login

Will Moody’s downgrade Mboweni?

 

 

It is sometimes seen as the mini- or medium-term budget — just an update of where we are — but so constrained are the government’s finances at present that Finance Ministers Tito Mboweni’s medium-term budget policy statement on Wednesday will be watched like it is the main event.

This is not least because credit rating agency Moody’s, which maintains South Africa at investment grade, will two days later issue its verdict on whether the South Africa will be downgraded to junk.

The government will be hoping that the announcement of a fix for Eskom’s finances and the long-awaited appointment of new chief executive for the utility will ward off a credit downgrade.

Intellidex’s Peter Attard Montalto predicted the Eskom announcement will be the most important part of the finance minister’s medium-term budget policy statement — “an appendix stuffed at the back”, he said. He suggested the statement will be light on detail regarding the national power utility, given that Eskom’s chief restructuring officer, Freeman Nomvalo, has gone somewhat “rogue”— with treasury appointing Deloitte to advise it on debt solutions.

Montalto said the full R13-billion contingency reserve is being spent this year; R11-billion on the bailout of state-owned enterprises (excluding Eskom) and the remainder to partly offset the revenue shortfall.

“We then see the contingency reserves for the coming years largely staying unchanged given the risk of further SoE [state-owned entities] bailouts. As such, we see the reserves staying around or only just below R6-billion a year”.

Investec economist Lara Hodes said the R59-billion bailout of eskom by the treasury will push the debt-to-gross domestic product (GDP) ratio from 56.2% to about 60%. “The extra funds required to keep this essential entity afloat, coupled with extensive debt-servicing costs, will continue to be a significant burden on expenditure in the medium term,” she said.

South Africa’s GDP contracted 3.2% in the first quarter and increased 3.1% in the second. The economy is now growing at 0.9% on an annual basis.

Hodes said lower growth means the treasury will likely lower its GDP growth projection of 1.5% for 2019 as published in the 2019 budget, bringing it closer to the South African Reserve Bank and International Monetary Fund’s projections of 0.6% and 0.7%, respectively.

Mike Teuchert, taxation head at Mazars, predicts that Mboweni will talk more about his economic stimulus plan, as detailed in his Economic Transformation, Inclusive Growth and Competitiveness: Towards an Economic Strategy for South Africa document, which was released in August. The plan aims to raise the country’s sluggish GDP growth rate to as much as 3% a year and create one million new jobs through the implementation of various economic and labour reforms.

“Mention of this plan is almost a certainty, but hopefully this will encompass a clear and practical strategy for facilitating real economic growth in the coming months. It may also foreshadow some of the possible decisions that are going to come out of the ANC’s national executive committee, based on the recent representations that Mboweni has made to the council,” Teuchert said.

The medium-term budget policy statement is an update to the budget tabled in February, updating the government’s tax and spending plans. It sets out the government’s priorities for the next three years and sets departmental, provincial and local government allocations.

Tshegofatso Mathe is an Adamela Trust business reporter at the Mail & Guardian

Subscribe for R500/year

Thanks for enjoying the Mail & Guardian, we’re proud of our 36 year history, throughout which we have delivered to readers the most important, unbiased stories in South Africa. Good journalism costs, though, and right from our very first edition we’ve relied on reader subscriptions to protect our independence.

Digital subscribers get access to all of our award-winning journalism, including premium features, as well as exclusive events, newsletters, webinars and the cryptic crossword. Click here to find out how to join them and get a 57% discount in your first year.

Tshegofatso Mathe
Tshegofatso Mathe is a financial trainee journalist at the Mail & Guardian

Related stories

WELCOME TO YOUR M&G

If you’re reading this, you clearly have great taste

If you haven’t already, you can subscribe to the Mail & Guardian for less than the cost of a cup of coffee a week, and get more great reads.

Already a subscriber? Sign in here

Advertising

Subscribers only

South Africa breaking more temperature records than expected

The country’s climate is becoming ‘more extreme’ as temperature records are broken

More top stories

US fashion contaminates Africa’s water

Untreated effluent from textile factories in in Lesotho, Ethiopia, Kenya, Mauritius and Madagascar pours into rivers, contaminating the water

Deep seabed mining a threat to Africa’s coral reefs

The deep oceans are a fragile final frontier, largely unknown and untouched but mining companies and governments — other than those in Africa — are eying its mineral riches

Komodo dragon faces extinction

The world’s largest monitor lizard has moved up the red list for threatened species, with fewer than 4 000 of the species left

DA says ANC’s implosion has thrown local government elections wide...

The DA launched its 37-page manifesto on a virtual platform under the banner “The DA gets things done”.
Advertising

press releases

Loading latest Press Releases…
×