Moody’s Sees Slower South Africa Fiscal Progress Than State Does

LAGOS (Capital Markets in Africa) – South Africa’s fiscal consolidation will be slower than the government estimates because of weak economic growth and a higher public-sector wage bill, Moody’s Investors Service said.

Moody’s sees the country’s fiscal deficit at about 4 percent of gross domestic product in the year through March 2019, the company said in an emailed statement Wednesday. That compares with the state’s February budget forecast for a 3.6 percent gap.

“Growth this year is expected to be lower than the government’s own estimates, weighing on tax revenues, while the public sector wage agreement in June also brings extra, unbudgeted cost,” Moody’s said. “Medium-term deficit targets remain within reach and, if met, will support a stabilization of debt levels.”

Business sentiment and the rand have wiped out all the gains that came on the back of President Cyril Ramaphosa’s ascent to power since December. Former President Jacob Zuma’s scandal-ridden tenure of almost nine years saw Africa’s most-industrialized economy lose the investment-grade status it held with S&P Global Ratings and Fitch Ratings Ltd. since 2000.

Moody’s affirmed the country’s debt scores at one level above junk in March, and changed the outlook to stable from negative.

South Africa’s government reached a three-year wage agreement with its 1.3 million workers in June, with civil servants getting raises of 6 percent to 7 percent for the year through March 2019 and by as much as 1 percentage point more than the consumer inflation rate for the following two years.