The 2018 Budget Speech by Finance Minister, Malusi Gigaba has been been better received by the public than the mid-term budget was, with the suggestion that (in accompaniment with recent political events) it may just be enough to appease ratings agencies in the near term and survive the upcoming review by Moody’s Investor Relations.
The budget plan suggests an R85bn cut in expenditure over the next three years, while key proposals for increased collections are; a move from 14% in Value Added Tax (VAT) to 15% and below inflation increases in personal income tax remittance.
The fiscal discipline in containing (reducing) expenditure over the next few years combines with recent moves by President Cyril Ramaphosa to address ailing State Owned Enterprise (SOE), Eskom. These have been highlighted concerns by ratings agencies and government is now showing real intent in addressing these issues.
Moody’s, the last of the three major ratings agencies to hold an investment grade rating on South Africa’s local currency debt is expected to conclude its review between now and the 23rd of March 2018. Broad expectations are that South Africa may have just done enough to buy another 6 months grace from the ratings agency, although it appears unlikely to shrug off the negative outlook.
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