South Africa’s R500 billion package to prop up its economy will limit the government’s ability to provide financial support to its state-owned enterprises, according to Moody’s Investors Service.
“The coronavirus support package will soften economic shock, but contribute to a sharp jump in debt,” Moody’s said in a report.
“The measures will weaken South Africa’s public finances and constrain the authorities’ ability to provide support to state-owned enterprises.”
The government refused further bailouts to its national carrier South African Airways this month, and is currently considering its options to assist the Land and Agricultural Development Bank after it defaulted on loan repayments.
Moody’s expects South Africa’s budget deficit to widen to 13.5% of gross domestic product in the fiscal year ending in March compared with its previous forecast of 8.5%.
The widening deficit and guarantees to state-owned companies will push up South Africa’s debt to 84% of GDP by March 2021, according to the rating agency.
It also said Africa’s most industrialized country could experience a 6.5% contraction this year.