Economy to shrink 5.5 percent, says Fitch

RATINGS agency Fitch has warned that South Africa’s debt could rise as much as 80.9 percent of gross domestic product (GDP) and projected fiscal deficit surge to

14.4 percent this year.

Fitch said in its outlook on sub-saharan African sovereigns on Friday that the country’s economy was also now expected to shrink

5.5 percent this year on the impact of the coronavirus (Covid-19) pandemic lockdown restrictions.

“Government debt was already on a sustained upward trajectory before the crisis,” Fitch said in its report.

“Consolidation measures in the February budget relied heavily on renegotiating a public sector wage agreement that only expires in April 2021, which has so far been elusive.”

Finance Minister Tito Mboweni, in February, projected that the GDP was projected to be R3.56 trillion, or 65.6 percent of GDP while the consolidated budget deficit would widen 6.8 percent to R370 billion this year.

In April, the government reneged on the last leg of a three-year wage agreement to increase salaries of public servants this year due to constraints on the fiscus.

Fitch and S&P rating agencies downgraded South Africa’s credit rating further into sub-investment territory in April due to a weak fiscal position and the impact of the Covid-19.

S&P also warned that South Africa’s R500bn stimulus package could widen the country’s debt burden further to unsustainable levels and weaken an already depressed economy.

S&P said the South African economy would contract by

4.5 percent this year due to lockdown restrictions, weak external demand conditions and tighter credit conditions.

Fitch maintained that the outlook on sub-saharan Sovereign remained negative despite the gradual easing of economic lockdown in the region.

On June 24, Mboweni will table a reworked budget to reprioritise expenditure from certain programmes towards the Covid19 response following a R500bn stimulus package.

South Africa imposed strict lockdown restrictions at the end of March in a bid to curb the spread of the Covid-19 pandemic.

Some of the restrictions have been relaxed to allow certain industries to run at full capacity subject to health and safety controls.

The SA Reserve Bank has forecast that the economy would contract 7 percent this year.

Intellidex’s Peter Attard Montalto said the research group had adjusted its growth forecast for the country to -10.4 percent for this year on support from different lockdown assumptions and some upside risk from level 3 seeing more activity.

“We only marginally adjust our GDP forecast to -10.4 percent with strong offsetting forces – weaker stimulus efficacy, lower global growth, better performance of the economy in level 3 and adjustments to level sequencing forecasts,” he said.