Will the budget be convincing enough for ratings agencies? Economists explain

Economist Xhanti Payi and Prof Osman Mollagee give their take on Minister Tito Mboweni's budget speech.

Economist and founder at Nascence Advisory Xhanti Payi says one of the key issues for South Africa is ensuring ratings agencies have confidence in the country's economy.

Finance Minister Tito Mboweni delivered his maiden budget speech on Wednesday with South Africa’s budget deficit expected to widen to 4.5 percent of gross domestic product in the 2019/20 fiscal year from 4.2 percent in 2018/19.

Payi says the deficit should be below 3% and this poses major problems.

It indicates whether or not we are going towards a place where we can actually afford our lifestyle as a nation. If you continue to spend above what you are earning, then you are continuously going down that path of not being able to support yourself at a stage later.

Xhanti Payi, Economist & Founder - Nascence Advisory

One of the key things that worried me a lot going into this budget was whether or not we could convince those ratings agencies, Moody's especially, that have been giving us a little bit of space to fix ourselves, to give them the confidence.

Xhanti Payi, Economist & Founder - Nascence Advisory

I am very interested to find out what Moody's has to say because I think that we are in major trouble if they are looking at this seriously and are not going to give us anymore chances than they already have.

Xhanti Payi, Economist & Founder - Nascence Advisory

Partner in Tax Service at PWC says Prof Osman Mollagee says an increase in the VAT rate will eventually come through.

The Sars has had to do a huge amount of catch up. More than half of the revenue collected from the increased VAT rate actually went into paying refunds.

Prof Osman Mollagee, Partner in Tax Service - PWC

The massive backlog of refunds that were held back for a long time in order for Sars to catch up took more than 15% of the extra VAT generated, he explains.

The other point is that the ability of the Sars to collect, that has come under the spotlight significantly. In my experience, the tide is turning but what we are seeing now is really, I think we are coming hopefully out of the worst of it.

Prof Osman Mollagee, Partner in Tax Service - PWC

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