WATCH: ‘Low risk’ of a near-term downgrade
The country’s precarious economic position was again highlighted this week with Eskom power cuts, while SA Reserve Bank (Sarb) governor Lesetja Kganyago discussed the country’s ratings dilemma.
Absa’s Fourth Quarter 2019 Quarterly Perspectives report last week said that the biggest risk for the balance of payments was a possible wave of portfolio disinvestment if Moody’s downgraded South Africa.
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“However, we believe the risk of a near-term downgrade is small, although with South Africa’s fiscal imbalances and weak growth, we believe Moody’s is more likely than not to assign a negative outlook on its Baa3 rating on November 1,” Absa said.
Absa said the MTBPS represented a huge crossroad for fiscal policy against a backdrop of weak growth, disappointing revenue collections and massive bailouts for Eskom.
“The government rightly believes that South Africa has no more room to hike taxes. We forecast a main budget deficit of 6.5percent of GDP (gross domestic product) this year and 5.9percent of GDP in 1920/21, assuming R45billion in spending cuts and R5bn tax hikes next year. We believe there is a risk that spending cuts next year could be bigger, but also that growth could disappoint, creating downside risks for revenues.”
Source: iol.co.za