Mike Cohen and Franz Wild
FINANCE Minister Pravin Gordhan’s R5 billion debt guarantee for SAA risks placing more strain on the budget as he seeks to avoid another downgrade amid falling tax revenue.
The cost of protecting local debt against non-payment for five years using credit-default swaps has risen 20 basis points to 142 since August 10, when an illegal strike that started at Lonmin’s Marikana unit near Rustenburg began spreading.
The rate for the Market iTraxx SovX index of emerging market nations has dropped 19 basis points in the period.
Gordhan is struggling to keep spending in check to control the budget deficit, prompting Moody’s Investors Service to lower South Africa’s credit rating by one level to Baa1 at the end of last month.
SAA lost a cumulative R7.98bn in the eight years to March last year and might post further losses this year, the Public Enterprises Ministry said yesterday.
“The guarantees will place more strain on the central government,” Mark le Roux, who oversees fixed income investments at Coronation Asset Management, said yesterday. “It’s just another element of pressure coming through.”
Gordhan has pledged to reduce the budget deficit to 3 percent of gross domestic product by the year to March 2015, from 4.6 percent this year. He is scheduled to give revised revenue and spending targets at a medium-term budget later this month.
The government had already lost R3.1bn in tax revenue after strikes at platinum and gold mines shut operations owned by Lonmin, AngloGold Ashanti and Anglo American Platinum, President Jacob Zuma said last month.
Moody’s cited South Africa’s deteriorating debt metrics and uncertain revenue prospects among the reasons for its decision to downgrade. The agency left the outlook on the rating as negative. – Bloomberg