South Africa\u2019s fiscal budget for 2016 lacks significant policy announcements that will spur GDP growth, or provide enough business confidence, rating agency Standard & Poor’s (S&P) said on Thursday.<\/p>\n
It said in a statement that its negative outlook of South Africa was not \u201cimmediately affected by the National Treasury’s 2016 budget\u201d and that \u201cno rating actions are currently warranted\u201d.<\/p>\n
S&P\u2019s rating of South Africa is the most negative out of the three rating agencies, which includes Moody\u2019s and Fitch.<\/p>\n
South Africans were hoping Finance Minister Pravin Gordhan\u2019s budget speech would convince the rating agencies that the country could pull itself out of its economic rut.<\/p>\n
Moody’s reacted immediately on Wednesday, saying it was concerned that the specific revenue measures that will accomplish the smaller deficits predicted for 2017\/18 and 2018\/19 have not yet been identified.<\/p>\n
\u201cOnly a rating committee may determine a rating action and, as these developments (listed below) were not viewed as material to the ratings, neither they nor this report were reviewed by a rating committee,\u201d S&P said in a statement.<\/p>\n
The rand was trading 0.78% stronger to the dollar on Thursday at R15.54.<\/p>\n
In December, before Nhlanhla Nene was fired as finance minister, S&P kept the long- and short-term foreign currency sovereign credit ratings on South Africa at BBB-\/A-3 and BBB+\/A-2 for the long- and short-term local currency ratings.<\/p>\n
S&P said Treasury’s budget projections are consistent with its assumptions of planned fiscal consolidation, albeit against a sharp downward revision of GDP growth in 2016.<\/p>\n
“The negative outlook reflects our view that GDP growth might be lower than we currently expect; for instance, due to persistent electricity shortages, continued weak business confidence, or labour disputes escalating again,\u201d it said in December.<\/p>\n
Treasury confirmed this outlook in its budget review on Wednesday, saying GDP growth is estimated to be 0.9% in 2016, 1.7% in 2017 and 2.4% in 2018. \u201cThis is considerably lower than last year\u2019s estimates,\u201d it said.<\/p>\n
Updating its view on Thursday, S&P said GDP growth rates are still subdued, and will likely remain so in the medium term, posing a threat to consolidation plans.<\/p>\n
\u201cThe announced budget lacks significant policy announcements that we think would immediately spur GDP growth, or provide much-needed business confidence to the private sector,\u201d it said.<\/p>\n
It warned that labour relations had the potential to further stagnate GDP growth this year in the mining sector.<\/p>\n
\u201cWe consider South Africa’s fiscal consolidation remains vulnerable to lower-than-expected GDP growth and shortfalls in revenues,\u201d it said.<\/p>\n
Moody\u2019s also said Treasury’s revised growth forecasts of 0.9% and 1.7% are still slightly more optimistic than its own predictions of 0.5% for 2016 and 1.5% for 2017.<\/p>\n
S&P said it noted that the budget’s ambitious fiscal consolidation targets for 2017-2018 and 2018-2019, which aim to reduce fiscal deficits at a faster pace than the Treasury previously anticipated.<\/p>\n
It believes the fiscal trajectory will be exposed to contingent liabilities resulting from state-owned entities with weak balance sheets, which may require more support than what the government has currently provided.<\/p>\n
\u201cDebt-servicing costs are vulnerable to the domestic interest rate environment and to a lesser extent to exchange rate weakness,\u201d it said.<\/p>\n
Mark Joffe, CEO of Global Credit Ratings, said the budget speech showed a pragmatic approach by Gordhan against a backdrop of subdued economic growth, twin deficits and a rising trend of government debt to gross domestic product.<\/p>\n
Fin24<\/a><\/p>\n Where the budget won and lost<\/a><\/strong><\/p>\n Recession still a reality in South Africa<\/a><\/strong><\/p>\nMore on the budget<\/h3>\n