The international credit rating agency Moody’s Investors Service concluded that South Africa will not succeed in reducing its debt burden in the time frame set by the Medium-Term Budget Framework (MTBF) this week – even if the MTBR has now opted for a five-year schedule instead of the usual three-year schedule.
Lucie Villa, senior credit officer at Moody’s, says the government is still not outlining how and when it will implement policies to boost growth and stem the state’s financial backwardness.
This is the same problem as with last year’s MTBR, she says.
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 enough is not 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.”
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 predicts that interest on government debt will reach 6.6% of GDP by 2022, compared to the government’s expectation of 5.6%.