Fitch has cited the widening budget deficit and increased expenditure as its reason for revising South Africa’s outlook from stable to negative. The ratings agency on Friday affirmed the country’s rating at BB Positive.
The widening budget deficit, spending related to support for state-owned enterprises and the slumping of the country’s Gross Domestic Product (GDP) growth were all core to Fitch’s decision to downgrade its outlook on South Africa to negative from stable.
Addressing the annual general meeting of the Central Bank on Friday, Reserve Bank Governor Lesetja Kganyago said weak economic growth does not just hinder efforts to reduce poverty and equality, but also weakens public finances. “For the current year, national treasury projects that the consolidated government deficit will rise to 4.5% of GDP and will only decline to 4.3% next year.”
Fitch believes South Africa’s GDP growth potential is in question based on its recent downward revision. It has also cited high levels of inequality as a hindrance to government’s implementation of policy to address such challenges.
There has been a considerable drop in the fiscal metric as a result of the under-performance of revenue and this may worsen in the current fiscal year. Credit Rating Analyst Saveshen Pillay says the fiscal metrics will worsen over the next 12 months.
On Tuesday, Finance Minister Tito Mboweni tabled a special appropriations bill for government support to Eskom to receive R59 billion over the next two years. The rand has struggled to make a meaningful recovery since then. It has weakened close to R14 against the dollar following a report by Moody’s, warning that the Eskom bailout would be credit negative
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Author- Nothando Magudulela
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