Moody’s ratings agency says it remains concerned about the elevated levels of government debt as well the uncertainty over the pace of economic recovery. In a research report, the ratings agency says it continues to expect a slower pace of fiscal consolidation and wider deficits.

They say this is based on the agency’s expectations of higher primary spending, especially regarding wages and interest.

Moody’s says while the pace of debt accumulation is slow compared to previous projections, it still expects government’s debt burden to rise to reach 100% of GDP by 2024.

Discussion on South Africa’s debt:

It says although support to state-owned enterprises increased only marginally in the budget, the sector and especially Eskom, continues to pose significant contingent-liability risks to the government.

In mid-February, Professor at the Wits School of Economics Business Science, Lumkile Mondi, said the Reserve Bank should play a more active role in helping government to manage the country’s R4 trillion debt crisis.

National Treasury projected that the national debt will increase to over 80% of the Gross Domestic Product in 2021.

Mondi said an increase in tax would prompt more people to move their money off-shore due to the public’s lack of faith in the government’s ability to manage public resources.

“It requires an expansionary fiscal model where government leans on the central bank to assist it by borrowing more of government debt and therefore putting liquidity to enable government to really invest hugely on failing infrastructure.”

Economic downgrade

In November 2020, Moody’s and Fitch Ratings agencies both downgraded South Africa’s sovereign credit rating deeper into sub-investment territory or junk status.

Fitch and Moody’s downgrades South Africa’s sovereign credit rating into further junk status:

The main reason for this change was high and rising government debt, which has been made worse by a weakening of the economy and a rise in unemployment due to the COVID-19 pandemic.

Finance Minister Tito Mboweni said there’s an urgent need for government to implement structural economic reforms to avoid further harm to the country’s sovereign rating. Mboweni said the decision by the rating agencies will have immediate implications for borrowing costs and constrain government’s budget.