SA budget highlights scale of fiscal deterioration – Fitch

JOHANNESBURG – South Africa’s 2020 budget review highlights the severe deterioration underway in public finances and the long-term policy challenge of stabilising government debt, ratings agency Fitch said.

Fitch, which like S&P Global has downgraded South Africa’s credit standing to sub-investment grade, said fiscal metrics had worsened moderately as indicated in the budget tabled by finance minister Tito Mboweni in Parliament on Wednesday, compared with last October’s medium-term budget policy statement.

It said budget consolidation measures announced by Mboweni relied heavily on hoped-for moderation in public sector wages which might not materialise, adding further risks to South Africa’s deficit and debt trajectories.

As part of efforts to reduce the budget deficit, expected to reach 6.8 percent of gross domestic product in 2020/21, Mboweni proposed cutting R160 bilion from the public wage bill over the next three years. 

He signalled he hoped this and other measures would fend off a downgrade to junk status by Moody’s, the last of the three main ratings agencies still maintaining South Africa at investment grade.

Fitch noted that the most recent three-year public sector wage settlement only expired in April 2021, and that the last agreement in 2018 was significantly higher than budgeted.