Economists warn of further credit downgrades after MTBPS

Market analyst Azar Jammine says Gigaba has done little to appease the agencies.

Finance Minister Malusi Gigaba delivers his first Medium Term Budget Policy Statement.  Picture: YouTube

CAPE TOWN - Experts warn that South Africa could face further credit rating downgrades possibly before the end of the year.

Finance Minister Malusi Gigaba delivered his maiden medium-term budget policy statement in Parliament on Wednesday, revealing that debt is forecast to reach R3 trillion by 2020.

Economic growth has been cut from 1.3% to 0.7% for this year.

Economist Lesiba Mothata says: “There will be definite downgrades before the end. The debts have become bigger, not only bigger but ballooned. The ceiling that was self-imposed is breached.

“For the first time since it was put together a few years ago and the whole matrix has not worked out. This is a definite downgrade.”

WATCH: Gigaba: Tough times ahead for SA

Market Analyst Azar Jammine says Gigaba has done little to appease the agencies.

“I think that’s running into this medium-term budget policy statement with probability of further credit rating downgrade at some stage within the next nine months is extremely high and I doubt that this speech would have done anything to allay those fears.”

Economist Thabi Leoka warns that should a downgrade to junk status occur both on local and foreign denominated debt, it will have a significant impact on South Africa’s borrowing plans.

“Should the rating agencies be unsatisfied with this budget, is just means more trouble for us from paying back perspective because the cost of servicing debt will increase but also it will be more difficult for us to borrow in future.”

In his address, Gigaba said South Africa's tax revenue shortfall amounts to R50.8 billion.

WATCH: Key points from the MTBPS

Leoka said that the country’s troubles have been laid bare in his speech, which the credit rating agencies will certainly take note of.

“Anything that they may have suspected or may have thought we are in control of have been verified by this speech that things are not as good as they should be and it’s going to be very tough for us to remedy the problem.”

Political analyst Daniel Silke added there were very few confidence building measures announced by Gigaba.

“Which largely means that South Africa will need to wait four or five months for the budget next year with new leadership from the ANC in order to achieve something more positive and to reboot the broader economy and business temperament.

“It is, therefore, I think, a very tough ride given this lack of anything positive from the budget.”

(Edited by Leeto M Khoza)