“Very small” S.A stimulus to have little impact: Moody’s

The tiny size of South Africa’s stimulus programme means it is unlikely to have much of an impact, with fiscal constraints preventing the government from pumping in much new money, Moody’s lead analyst for the country said on Wednesday.

After Africa’s most industrialised economy tipped unexpectedly into recession in the second quarter, President Cyril Ramaphosa on Friday announced a multi-billion-dollar stimulus to make good on a pledge to revive the economy.

He said 50 billion rand ($3.5 billion) of “reprioritised expenditure and new project-level funding” would be used to boost growth and create jobs, and the government would also launch a 400 billion rand medium-term infrastructure fund.

Lucie Villa, also a Moody’s vice president, said she expected the government to flesh out details of the stimulus plan and how it would translate into actual spending in a budget policy statement scheduled for Oct 24.

“In size (50 billion rand) it is very small, it is around 1 percent of GDP. I am not sure how much impact you can expect from a programme of this size but would expect it to likely be limited,” Villa told Reuters in an interview on the sidelines of a conference.

“Given their fiscal constraints they don’t have the room to do outright fiscal stimulus, so this could be repurposed, or not all government spending.”

Moody’s is the last of the “big three” international agencies to rate South Africa’s long-term foreign-currency debt at investment grade.

It said this month there was little chance it would cut the country to ‘junk’ this year, offering Ramaphosa some respite from a run of bad news on the economy.

Villa confirmed Moody’s outlook remained stable, but predicted a shortfall in tax revenues would increase. “We had 0.2 percent of GDP tax revenue shortfall, so it will probably be a bit more,” she said.

The biggest challenge for South Africa remained its low economic growth and the underlying factors driving this, such as a rigid labour market, said Villa. “In terms of the biggest risk, it is still state-owned enterprises.”