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Moody's has assessed SA's fiscal strength to be moderate, as Treasury has been able to keep spending below the expenditure ceiling.
However, in a research report on SA, released earlier this week, the ratings agency flagged constrained tax revenue collections.
"The collection of tax revenues has been constrained by low growth and the diminished effectiveness of the South African Revenue Service (SARS)," the report read.
Moody's also noted that government debt and contingent liabilities to state owned entities have doubled since 2008/09. At the end of 2017, government debt exceeded 50% of GDP, and contingent liabilities exceeded 20% of GDP, the report highlighted.
There has also been a deterioration in debt affordability. But, the fact that debt is dominated in local currency is favourable, Moody's said. "Moreover, the government actively manages debt and refinancing risk thanks to pre-funding."
As for low growth, the ratings agency observed that weakness in gross fixed capital formation made the "largest negative contribution" to overall growth. This reflects "deteriorating business confidence in overall economic performance", as there have been delays in implementing reforms – regarding land and the mining sector, Moody's pointed out.
Moody's projects growth for 2018 to be 0.5% and 1.3% in 2019.
SA remains on path of fiscal consolidation
Moody's is optimistic that SA will remain on the path of medium-term fiscal consolidation, despite "fiscal headwinds".
"Fiscal headwinds for FY2018/19 and in the medium term primarily stem from slower growth than assumed in the government's original budget plan, which affects tax performance, and a higher-than-expected wage bill," the report read.
"The government still has some flexibility to adjust in the medium-term to meet its target to bring the deficit down to 3.5% of GDP in FY2020/21 (from 4.3% in FY2017/18) and stabilise its debt, at a level that we believe will be around 56% of GDP."
Moody's expects government to miss its original targeted deficit for the 2018/19 fiscal year of 3.6% of GDP, which may possibly be over 4%.
As for the appointment of new Finance Minister Tito Mboweni, just weeks ahead of the mini budget to be announced on October 24, Moody's expects "last-moment changes" in policy implementation.
"We would not expect the broad direction of policy to be dependent on individuals, in particular given that institutions in South Africa have proven resilient to challenges in recent years," Moody's said.
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