Fitch seemed receptive to government’s commitment not to veer off its existing fiscal targets, despite the executive changes at the National Treasury.
“As the new finance minister has emphasised, the government’s commitment to existing targets still stands.
"As a result, it is unlikely that the government will raise its expenditure ceiling, which has served as a key anchor for fiscal policy.
“The government is also likely to implement some tightening if, as is expected, revenue under performs, but the adjustment will be insufficient to keep deficit targets on track,” said Fitch.
The agency, however, warned that South Africa’s ratings were weighed down by low gross domestic product growth, contingent liabilities and deteriorating governance.
It raised concerns about the effect of the recent cabinet reshuffle on the governance of state-owned companies (SOEs).
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It also warned about the possible weakened fiscal consolidation and reduced private sector investment as a result of the changes.
“While efforts to improve the (SOEs’) governance framework will continue, implementation decisions, for example on appointment of senior (SOEs’) management, will hamper these efforts and could lead to weaker financial positions of (SOEs) and higher contingent liabilities for the (South African) government.
“Given the weak state of (state-owned companies), the problems in (SOEs’) governance and the importance of (SOEs) for the country’s economy and politics, the risk that some of this debt will land on the sovereign balance sheet is substantial,” it said.
South Africa’s unemployment rate increased to 27.7percent in the first quarter of this year, compared to previous quarter, Statistics South Africa said yesterday.
The rand briefly dipped below R13 to the dollar after the Fitch announcement.