Moody’s say Mboweni’s MTBF lacks detail, government debt to rise

South Africa’s mid-term budget statement lacks detail on how and when the government will implement policies to boost economic growth, ratings agency Moody’s said, so public debt will likely continue to increase for years.

“As a result, we expect the economy will remain subdued and for fiscal consolidation to be slow, sustaining the rise in government debt in the next couple of years,” Moody’s said in a research report dated October 29, Reuters reports.

Finance Minister Tito Mboweni, tabling his Medium-Term Budget Framework (MTBF) on Wednesday, pledged to freeze the wages of the country’s 1.3-million civil servants as part of government’s plan to close a yawning budget deficit and bring down debt.

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The international credit rating agency Investors Service concluded that South Africa will not succeed in reducing its debt burden in the time frame set by the MTBF this week – even if the MTBR has now opted for a five-year schedule instead of the usual three-year schedule.

Lucie Villa, the agency’s lead analyst for South Africa says the government is still not outlining how and when it will implement policies to boost growth and stem the state’s financial challenges.

Villa says the MTBR recognizes the scale of the country’s economic and fiscal problems. 

There is also still an emphasis on structural reform and fiscal consolidation. But not enough is being done.

“Therefore, Moody’s expects the economy to remain depressed and fiscal consolidation slow, with a sustained rise in government debt over the next few years.”

Government over-optimistic

Moody’s points out that the reduction in interest rates by the Reserve Bank – by a total of three percentage points this year – has done little to help the government’s consolidation efforts. 

“While the interventions helped dampen upward pressure on long-term borrowing costs, the yield on ten-year government bonds continued to rise to 10.4% by the end of September, from an average of 10.1% in the first nine months of 2020 and 9.1%. in 2019. ”

Moody’s views the Treasury over-optimistic about the rise in interest rates, as well as its primary budget deficit.

Villa predicts that the budget deficit will be almost 2.5% of gross domestic product (GDP) more than the Treasury predicts.

She also forecasts that interest on government debt will reach 6.6% of GDP by 2022, compared to the government’s expectation of 5.6%.