South Africa’s finance minister is likely to raise the medium-term targets for budget deficits, a Reuters poll forecast on Tuesday said.
The poll forecast attributed the likely budget deficit to costs related to the state-owned power utility, Eskom.
A poll of 14 economists surveyed in the past week predicted Finance Minister Tito Mboweni would expand the budget deficit to 6.05 per cent of Gross Domestic Product (GDP), compared to 4.5 per cent projection in February for the year that began in April.
The poll put 2020 fiscal year’s deficit at 5.6 per cent of GDP compared to a 4.3 per cent forecast in February.
“The budget deficit forecasts are likely to widen somewhat in the near term until revenue improves
on [tax] collection efficiencies,” said Annabel Bishop, chief economist at Investec.
Jeffrey Schultz, economist at BNP Paribas, said additional state support to Eskom would cut GDP by 1.2 per cent over the next two years.
South African President Cyril Ramaphosa said on Monday that the government would soon announce a permanent chief executive for state-run Eskom after the struggling power utility reintroduced rolling blackouts last week.
“Eskom’s long-term turnaround strategy released this month should also indicate that an Eskom debts restructure is on the cards.
“With a good chance that a healthy portion of the state’s nearly 7 per cent of GDP in Eskomguaranteed debt will move onto the sovereign balance sheet,” Schultz said.
The crisis-hit utility, which produces more than 90 per cent of South Africa’s electricity, has been hobbled by technical and financial woes. It imposed days of power cuts last week after a number of its generating units broke down.
The company’s debt stood at more than 440 billion rand (29.94 billion dollars) in 2018/19, when the company reported a mammoth 20.7 billion-rand annual loss.
According to the poll, as poor as the country’s finances are, the poll predicted unanimously that South Africa will avoid a credit rating downgrade when Moody’s reviews its status this month.
However, Elize Kruger, an economist at NKC African Economics and Rand Merchant Bank, Mpho Tsebe expect Moody’s to lower its outlook to negative from stable on Nov. 1. Some economists reckon a downgrade would follow in 12 months or more.
In September, Moody’s said fiscal risks and political constraints to economic reform in South Africa were reflected in its current credit rating.
According to Moody’s, it is one notch above speculative grade. But maintaining that rating depended on how fast the government implemented promised reforms.
A majority of economists said a debt-to-GDP ratio of more than 70 per cent would be considered a red flag for South Africa, but it would take more than five years to get there.
The ratio currently sits around 57 per cent. A separate survey last week predicted economic growth would remain under pressure at 0.6 per cent this year and 1.2 per cent in 2020.
