adminRATINGS agency Moody’s on Wednesday again warned South Africa of the risks of a high wage bill and of the government bailing out cash-strapped state entities.
The demands from both would hamper the state’s plans to rein in spending, it said.
Though Moody’s mentioned only Eskom and the South
African National Roads Agency in a credit opinion, several state entities – including South African Airways, the Post Office and PetroSA – are in turmoil financially and operationally.
“The financial troubles of . . . Eskom and difficulty in implementing highway tolls to pay back government-guaranteed debt issued by the national roads company suggest that the government’s efforts to distance itself from its state entities’ finances will take more time and could still be more costly than planned,” Moody’s said.
The government is on a fiscal consolidation path that involves raising taxes, limiting spending and reducing the main budget spending ceiling for 2015-16 to R1,1 trillion to bring down a large budget deficit.
Large deficits have contributed to rand weakness and credit rating downgrades.
An above-inflation wage increase of 7 percent for about 1,3 million public servants this year means it will have to cut spending in other areas to stay within the spending ceiling.
Finance minister Nhlanhla Nene has acknowledged the effect of the wage increase, telling an African National Congress lekgotla that the hike and benefits would cost an extra R12,6 billion this year, R21 billion next year and R32 billion the year after.
“Money that was held back to support new policy initiatives will be diverted towards compensation.”
This would also curb job creation in the public service, the minister said.
Despite its challenges, South Africa’s ratio of debt-to-GDP was expected to stabilise at 48 percent as early as this fiscal year, Moody’s said.
Moody’s downgraded South Africa to Baa2 with a stable outlook in November last year, two levels above the speculative grade, or junk status, rating.
It said the rating took into account the country’s weak economic growth prospects over the next several years due to infrastructure and other constraints.
The stable outlook, however, reflected policy makers’ commitment to containing increases in government deficits and debt, it said.
The agency’s forecast of 2 percent economic growth this year is in line with that of the treasury and many others.
Old Mutual Investment Group economist Johann Els said while growth was struggling due to electricity shortages, weak commodity prices and a weak rand, positive signs such as an improving trade deficit could buoy the economic outlook. – Business Day SA.
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