IMF sees tough SA budget

SA will face more fiscal difficulties and higher financing costs should the debt of state-owned enterprises continue to rise and if the nation’s local debt is downgraded to junk, the International Monetary Fund (IMF) said.

If state entities such as cashstrapped power utility Eskom and South African Airways, request more state support, the government will have to step in to help, removing fiscal space for “more socially useful activities,” Montfort Mlachila, the lender’s senior resident representative in SA, said.

“If the current fiscal problems are not addressed soon enough, it will obviously worsen the market sentiment and could increase the financing costs. If nothing is done between now and the budget presentation in February, then things will become a lot more difficult on the fiscal front.”

SA projects a revenue shortfall of R50.8 billion in the government’s fiscal year that ends in March and sees public debt exceeding 60% of GDP by 2021.

Despite the predicted widening fiscal gaps, Finance Minister Malusi Gigaba doesn’t want to “deviate irretrievably from the fiscal consolidation agenda,” he said in his mini budget.

The country hasn’t approached the IMF for help, Mlachila said. “If South Africa were to come to the IMF, we would obviously be ready to assist.”

The sustainability of the nation’s debt would be at risk unless government presented a credible fiscal consolidation plan in 2018, Moody’s said. The change in policy direction away from a focus on fiscal consolidation was faster than expected, Fitch said.

Moody’s assesses the nation’s foreign- and local-currency debt at one level above junk and is scheduled to make an announcement on November 24. S&P, which is also due to review its reading the same day, has SA’s rand debt at the lowest investment grade and foreign securities at the highest junk level – Bloomberg

If the country approaches us for help, we would gladly assist. Montfort Mlachila IMF senior resident in SA