Moody’s Predicts Slower Fiscal Progress in S. 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% 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% gap, Fin24 reported.

“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.”

In July the South African Reserve Bank cut its 2018 growth outlook to 1.2%, lower than an earlier forecast for 1.7%, after a string of disappointing economic data in the first half of the year.

In a presentation to a parliamentary committee, the SARB reiterated its cautious outlook. “The South African economy remains vulnerable,” the presentation said.

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 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% to 7% 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.