Johannesburg - South Africa must stick to its budgetary
promises and be consistent with policies to maintain its investment-grade
credit rating, Finance Minister Pravin Gordhan said.
“We have kept to our fiscal commitment -- we said we
would continue with fiscal consolidation in a careful and balanced way, we
said that we would taper off debt, we have kept to that to a large
extent,” Gordhan said in an interview in Cape Town Wednesday. There is “no
evidence” that political developments within the ruling African National
Congress will change policy, he said.
Slow economic growth and political infighting are key
factors rating companies have highlighted as risks to their assessments.
Gordhan has had to balance efforts to boost the economy against the need to
contain rising debt to fund the budget of Africa’s most-industrialised economy.
He pledged to narrow the budget deficit to 2.6 percent of
gross domestic product in the year through March 2020, from an estimated 3.4
percent in the current fiscal year. The economy probably expanded at the
slowest pace in seven years in 2016.
Speculation that Gordhan is about to be fired has swirled
for months, as he clashed with President Jacob Zuma over the management of
state companies and the national tax agency. While the minister has led efforts
to keep spending in check and fend off a junk credit rating, Zuma wants to
embark on “radical economic transformation” to tackle racial inequality and
widespread poverty.
Policy matters
“There were finance ministers before me and there will be
finance ministers after me,” Gordhan said. “I don’t think the individual
matters, it’s the policy that matters. And if we can sustain a sensible fiscal
policy, like we have done for the past 20-odd years, I think we will keep
everybody happy. People come and go, but the key is, and even the ratings
agencies will tell you that, that it’s about policy consistency and
institutional strength.”
The rand was little changed at 12.9744 per dollar by
midday in Johannesburg on Thursday. Yields on rand-denominated government bonds
due December 2026 fell five basis points to 8.70 percent.
The Treasury expects to collect R1.14 trillion ($87.7
billion) in taxes in the 12 months through March 2017, R30.4 billion less than
it projected a year ago and the biggest shortfall in seven years. It
anticipates raising an additional R16.5 billion from the new top tax bracket
and also by limiting relief for inflation, an extra R6.8 billion from a higher
dividend tax and R5.1 billion from increased fuel taxes and duties on tobacco
and alcohol.
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New measures to raise tax revenue “should assist ongoing
fiscal consolidation efforts,” Ravi Bhatia, director for sovereign ratings at
S&P Global Ratings, said in an e-mailed response to questions.
Ratings Assessment
While S&P and Fitch Ratings kept their assessments of
the nation’s foreign-currency debt at one level above junk late last year, and
Moody’s Investors Service rates the debt one step higher, there is still a
chance that South Africa will be downgraded this year, Russell Lamberti, a
chief strategist at ETM Investment Services in Cape Town, said earlier this
month.
“Amid challenging conditions, the 2017-18 budget sets out
fiscal-consolidation targets consistent with commitments in the 2016 mid-year
policy statement, including a gradual stabilizing of the debt-to-GDP ratio,”
Moody’s Vice President Zuzana Brixiova said by e-mail. “While government guarantees
relative to GDP are also projected to stabilize, their actual drawdowns are
rising and represent increasing risks to the government’s fiscal position.”
Jan Friederich, a senior director at Fitch, didn’t
immediately respond to e-mailed and calls seeking comment.
There is always a risk of a cut when a rating is one
notch above sub-investment grade, Gordhan said.
“That is why the good work that we have done last year in
working with trade unions, business and civil society needs to continue into
this year,” he said.