CAPE TOWN - South Africa must swiftly slash government borrowing if it is to avoid a debt trap that would force it to seek help from the International Monetary Fund (IMF), Finance Minister Tito Mboweni said on Thursday.
Africa's most industrialised economy is mired in recession and faces revenue shortfalls, ballooning debt, cash-strapped state firms and a rising public wage bill.
The rand and government bonds weakened sharply on Wednesday after Mboweni predicted wider budget deficits and cut growth forecasts in a bleak debut budget policy statement.
"Whether or not you like the IMF, ideologically or practically, it doesn't matter. When you get into a debt trap that's where you end up," Mboweni told lawmakers.
"That low economic scenario has reduced tax revenues. We clearly have a problem."
Mboweni said he doubted that the government would find an investor to take an equity stake in struggling state-run South African Airways (SAA).
"I doubt you are going to find an equity partner who will come into SAA in this current state. As an equity partner you'd have to immediately assume debt of some R21-billion," Mboweni said.
Treasury Director General Dondo Mogajane told lawmakers approaching the IMF should be avoided "at all costs" as it would involve tough structural adjustments.
"We don’t want to be there (IMF). We think that by doing some basic things, these are low hanging fruits, we will be able to get growth going," Mogajane said.
The Treasury halved the growth forecast for 2018 to 0.7 percent after the economy slipped into recession in the first half of the year.
Analysts say ratings agencies are likely to take a dim view of the Treasury's latest budget projections.
Moody's -- the last of the "big three" agencies to have South Africa at an investment grade rating of Baa3, with a stable outlook -- is expected to review the sovereign's rating in the coming weeks.
Mogajane said he had spoken with all three major credit ratings agencies to clarify elements of the medium-term budget.
"Even if South Africa were to avoid junk status, for now, the rating outlook would no doubt be downgraded," Commerzbank analysts wrote in a note.
S&P Global Ratings and Fitch already rate South Africa's debt as "junk" status.