The SA Daily
25 October 2018
MTBPS: deficit & debt
Shireen Darmalingam
- Yesterday’s Medium-Term Budget Policy Statement (MTBPS) showed a significantly wider deficit as well as a rising debt trajectory. We view this MTBPS as negative for bond yields, the credit risk premium, and the rand. See our report MTBPS: initial thoughts: another unpleasant surprise of 24 October, by Elna Moolman.
- Negatives: The bigger-than-expected payment of retrospective and overdue VAT refunds has widened the deficit and increased the debt trajectory. Government has increased current-year refund estimates, while marginally lowering company and personal income tax revenue expectations. The expenditure ceiling was preserved, and interest payment estimates were increased. This, and the downward revenue revisions, widened the main budget deficit. This translates into a R6bn increase of the funding requirement despite redemptions reducing the funding requirement by around R18bn for FY18/19.
- Positives: Government preserved the expenditure ceiling despite the higher-than-expected wage increase agreed to earlier this year. The R50bn of spending required by the presidential recovery and stimulus plan, and extra funding for the SOEs, were accommodated without reducing the contingency reserve. Government debt should still stabilise over the medium term but the debt-GDP trajectory is up noticeably.
- View on ratings: Moody’s may take event-driven rating action at any time. However, we don’t expect the agency to take rating action in response to the MTBPS, as debt is seen to stabilise and Moody’s is confident about the political will to repair growth and the fiscal trajectories.
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