February 27, 2020 / 6:07 PM / a month ago

UPDATE 1-Moody's sees 'elevated' risks to South African budget forecasts

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JOHANNESBURG, Feb 27 (Reuters) - Ratings agency Moody’s said on Thursday it sees “elevated” risks to South Africa’s budget forecasts due to doubts over whether trade unions will agree to cutting the public sector wage bill and potential liabilities from struggling state companies.

Finance Minister Tito Mboweni said during an annual budget speech on Wednesday that the government would cut public sector wages by around 160 billion rand ($10.5 billion) over the next three years to contain a rising budget deficit.

But many analysts are sceptical that the government will be able to achieve those cuts given entrenched opposition from unions.

Even with the cuts, the budget deficit will reach 6.8% of gross domestic product (GDP) next fiscal year.

Moody’s is the last of the big three ratings agencies to have South Africa in investment grade and is scheduled to review that rating next month.

It said in a research report that the risks for South Africa were skewed towards a higher debt path, given challenges in containing spending and persistent obstacles to economic growth.

“Even if the government achieves its planned spending restraint, the government’s projected primary deficit of 1.1% of GDP by fiscal 2022 would still be too wide to stabilize the debt burden,” the report said.

“The fiscal trajectory under the new budget is broadly similar to the Medium-Term Budget Policy Statement presented in October.”

Moody’s said in November that a credible fiscal strategy at this week’s budget would be crucial for South Africa to maintain its current ‘Baa3’ rating. The outlook on that rating was lowered to “negative” last year.

$1 = 15.2377 rand Reporting by Alexander Winning and Karin Strohecker Editing by Mark Heinrich and Alexandra Hudson

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