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The SA Daily 26 February 2020

Budget: junk down the line

Shireen Darmalingam

  • Finance Minister Mboweni will present Budget 2020 in parliament today. We foresee an uncomfortably high longer-term fiscal projection. In the Medium-term Budget Policy Statement (MTBPS) in October 2019, he had already noted SA’s weaker fiscal framework due to subdued economic growth and less government revenue. The main budget deficit was seen at 6.2% of GDP in FY19/20 and was expected to widen to 6.8% of GDP in FY20/21; it was expected to compress to 6.2% of GDP by FY22/23, according to the October estimates.
  • We forecast a budget deficit wider than the MTBPS had forecast for FY19/20 (around 6.5% of GDP), similar for FY20/21 (6.8% of GDP), and smaller for FY21/22 (5.9%).
  • The debt-to-GDP ratio is expected to rocket to over 70% in the next three years (71.3% of GDP by FY22/23 in case of no fiscal interventions), which could see rating agencies take negative action on the sovereign’s rating.
  • Should Minister Mboweni today not announce large reductions in spending forecasts, a Moody’s downgrade will likely follow on 27 March. The risk of a downgrade by Fitch is also significant, with that rating placed on negative outlook last year — even before the disappointing October MTBPS. S&P might also downgrade SA’s sovereign credit ratings in 2020. We therefore do not expect this Budget to prevent a downgrade to junk status.

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