JOHANNESBURG – South Africa’s weak growth outlook will hobble its ability to raise tax revenues and take measures to tackle the effects of severe drought, ratings firm Moody’s said on Thursday.
South Africa suffered its driest year on record in 2015 as severe drought spread across southern Africa, hitting growth hard and fuelling inflation.
“Current levels of tax and other government receipts fall short of the government’s spending needs by 3% to 4% of GDP annually,” said Moody’s senior vice president Kristin Lindow in a credit outlook report.
South Africa’s central bank cut its growth forecast for this year to 0.9% from a previous forecast of 1.5%, while Moody’s sees the possibility of growth as low as 0.5% in 2016.
New Finance Minister Pravin Gordhan is scheduled to deliver what will be a closely watched budget speech on February 24.
Moody’s rates South Africa two notches from subinvestment grade with a negative outlook.
Fellow ratings firms Fitch and Standard Poor’s both have the country only one notch above junk status, and have cited weak growth, policy uncertainty and large budget and current account deficits as major risks for a downgrade.