It’s not a matter of if but when South Africa’s credit rating will be downgraded.
Economists say next week’s budget speech will be all about preventing Moody’s from downgrading South Africa.
The rating agencies will be eagerly waiting to hear how the government plans to reduce debt, cut its deficit and achieve R150-billion in savings.
Economists say unless government pushes through much-needed economic reforms, a credit downgrade is a strong possibility.
Momentum Investments representative, Mike Adsetts said, “the only way you’re going to stop the downgrade in the medium term is for growth to come back. Growth will only come if you sort out Eskom, policy certainty comes.”
Moody’s, the only one of the three major credit rating agencies not to have already downgraded South Africa to junk, revised the country’s outlook to negative in November.
A negative outlook indicates that a downgrade is planned.
If Moody’s cuts the country’s credit assessment, South Africa will be excluded from the World Government Bond Index.
Economists say this could trigger outflows of as much as R150-billion from the rand-bond market.
Analysts say government’s promised savings will have to come from reducing the public sector wage bill, additional taxes and disposal of some of the state-owned companies’ non-core assets.
It’s hoped Finance Minister Tito Mboweni’s budget speech will focus on SOEs.
Experts say if the government does not cut back on planned current expenditure, this could result in even weaker growth.
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Source – eNCA