Johannesburg - Fitch Ratings yesterday expressed a dim view of Finance Minister Nhlanhla Nene’s medium-term budget policy statement.
In a statement, Fitch said the mini budget “included a marked downward revision in economic growth prospects with a knock-on adverse impact on projections for the budget deficit and government debt to gross domestic product (GDP) ratio in the medium term, which the government did not seek to offset with fiscal policy tightening”.
The agency said South Africa’s growth and the outlook for the public finances would form an important part of its next review of the country’s sovereign ratings.
Fitch said the statement highlighted how challenging it would be to stabilise public finances in the face of weak growth.
It said the combination of larger budget deficits and lower nominal GDP would keep public debt rising but affirmed South Africa’s rating at BBB, with a negative outlook on June 5.
Nene cut this year’s growth forecast to 1.5 percent from 2 percent and predicted growth of 1.7 percent next year, down from an earlier estimate of 2.4 percent.
With the slowdown reducing revenue tax projections by R35 billion over the next three years, the budget deficit will widen from earlier forecasts, reaching 3.3 percent in the year through March 2017 and 3.2 percent in the following year.
Most economists, however, were not anticipating an imminent downgrade.
Peter Attard Montalto, an economist at the London-based Nomura International, said there was enough in the statement to avoid a downgrade.
Sanisha Packirisammy, an economist at MMI Holdings, said: “While we are not anticipating an imminent downgrade of South Africa’s sovereign debt to junk status, the rating agencies have been warning that the South African economy remains trapped in a low growth environment, providing little hope of a significant improvement in the fiscal and debt ratios.”
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