Global ratings agency Moody’s Investment Services has lowered its economic expectations for South Africa in the 2020 fiscal year, saying the R500-billion COVID-19 rescue package will weaken public finances and constrain government’s ability to provide support to state-owned firms.
Moody’s thinks the country’s economy will contract by 6.5% in the year to 31 March 2021. Previously it had forecast a contraction in the economy of 2.5% over the same period.
In its latest research report published on Friday 24 April, the ratings agency said it anticipated that economic growth will recover by 4.5% in 2021.
On Tuesday 21 April, President Cyril Ramaphosa announced a rescue package equivalent to 10% of GDP in an effort to cushion the economic blow of the coronavirus pandemic.
Ramaphosa said South Africa had approached global financial institutions such as the World Bank, International Monetary Fund, BRICS New Development Bank and the African Development Bank, primarily to fund healthcare interventions.
The rest of the package would be financed by a mix of R130-billion of reprioritised spending and other local sources.
In its research report, Moody’s noted: “The package is key to helping the country’s weakest households and enterprises to weather a period of lower revenue inflows amid the domestic lockdown and slowdown in global trade. However, the support measures are unlikely to prevent a sharp economic contraction this year.”
The sharp widening in deficit will push the country’s debt burden up by 15 percentage points to 84% of GDP by the end of fiscal 2020, the ratings agency said.
Source: www.thesouthafrican.com
