Govt needs to stabilise debt in the medium term: Economist

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Finance Minister Tito Mboweni will have to race against time to implement government’s reforms in order to avoid a sovereign credit rating downgrade from ratings agency Moody’s.

Moody’s has changed the outlook on the country’s debt from stable to negative.

A downgrade would complicate government’s already tricky task to balance the budget and it will most likely raise borrowing costs.

Economist Azar Jammine says government has to try and stabilise debt over the medium term for the outlook to change back to stable.

“Until now Moody’s has been hoping that the structural reforms has been promising all the time would actually be implemented. And they’ve given us a benefit of the doubt to see if that is going to happen but it appears as if the Medium Term Budget Policy Statement confounded those areas of hope and instilled pessimism and disillusionment within Moody’s.”

Moody’s has given National Treasury until the February budget to implement the necessary reforms to lift the economy out of the slump.

It cited a lack of faith in governments’ ability to implement its intended economic reforms.

Jammine says the tripartite alliance’s resistance to Mboweni’s economic strategy is what’s standing in the way of economic growth.

“The govt seems to be unwilling to act against the interests of the tripartite partners interests of the alliance and if that is the case the we are going to stick with the status quo that ceased the current dull economic environment continuing at least it’s not collapsing and that is a positive. But it’s certainly not good enough to prevent budget deficits from rising as a result of revenue undershooting and expenditure overshooting and with that the public debt is increasing all the time.”

South Africans are beginning to face the reality of rising government debt, a stagnant economy and a rising unemployment rate.