[ad_1]
Ratings agency Moody’s has cut its forecast for the South African economy to a 6.5% contraction in fiscal year 2020, saying the country’s R500 billion bailout package will weaken its public finances and limit the government’s ability to provide support. to state companies.
Read:
Ramaphosa R500bn Covid-19 Distress and Stimulus Response
Covid-19: Freeze dividends and executive bonds, Sarb tells bankers
Moody’s, which predicted April 14 that South Africa’s GDP in the year ending March 31, 2021, will contract 2.5%, also said in a research report on Friday that economic growth will rebound 4 .5% in 2021.
President Cyril Ramaphosa announced on Tuesday the rescue package, equivalent to 10% of the GDP of the most industrialized nation in Africa, to try to cushion the economic blow of the coronavirus pandemic.
Ramaphosa said South Africa had reached out to global financial institutions such as the World Bank, the International Monetary Fund, the New BRICS Development Bank and the African Development Bank, primarily to finance health care interventions.
The rest of the package would be financed by a combination of R130 billion of prioritized spending and other local sources.
“The package is key to helping the country’s weakest households and businesses get through a period of lower income amid the national blockade and the slowdown in world trade,” said Moody’s.
“However, support measures are unlikely to prevent a strong economic contraction this year.”
With the economy’s weak impact on revenue, the rating agency now expects the government to post a budget deficit of 13.5% of GDP in fiscal year 2020, up from 8.5% estimated last Tuesday.
The sharp widening of the deficit will raise the country’s debt burden by 15 percentage points, to 84% of GDP by the end of fiscal year 2020, he said.
“The fiscal pressures associated with the economic recession and the support package reduce the space that the government has available to provide more support to state-owned companies. While the initial fiscal impact to the government is neutral, the scheme will increase the risks of contingent government liability, “he said.
Several state-owned firms, such as electric utility Eskom and South African Airways, are facing financial difficulties and mounting pressure on the Ramaphosa government, which does not have much money.
