JOHANNESBURG - Economists believe that cleaning up governance issues at embattled state-owned enterprises (SOEs) will be the litmus test of the newly elected ANC top six while the contents of February’s Budget would be telling for the economy’s growth trajectory.

Bianca Botes of Peregrine Treasury Solutions said the ANC had a very tough road ahead.

“For now, the focus will be on Cyril Ramaphosa and what he’s able to do in terms of policy before shifting to the State of the Nation address and the Budget speech coming up next year,” Botes said. The February Budget speech follows the medium-term budget policy statement that was not well received by the markets.

The National Treasury has projected a revenue shortfall of R50.8billion in the 2017/18 financial year, while a shortfall R69.3bn is estimated in 2018/19 and R89.4bn in 2019/20. Rating agency Moody’s Investor Services has already placed the country on a credit downgrade review pending the Budget.

ANC elective conference preparations get under way at Nasrec Expo Centre in Johannesburg. ITUMELENG ENGLISH, INLSA

The rating review period, which started on November 24 this year and is expected to run until after the announcement of the 2018 Budget in February, will allow Moody’s to assess the willingness and ability of the authorities to implement policies that would address fiscal deterioration challenges.

The rating agency yesterday welcomed Ramaphosa’s election to the helm of the ANC.

It said a change of approach might be observed relatively quickly, particularly when measures intended to halt the gradual deterioration of South Africa’s fiscal profile were announced in the 2018 Budget.

“The swift implementation of even a subset of reforms - in particular, those pertaining to fiscal stability and to SOE governance - would likely boost confidence, investment, and growth,” Moody’s said.

Analysts from Investec said the rubber would need to meet road in terms of the new party leadership dealing with rampant corruption issues within the party as well as governmental and SOE mismanagement. “The crucial February Budget looms large now, with the threat of ratings downgrades to full junk status still a lingering risk headwind in the absence of a credible plan to rein in the fiscus and enact economic reforms,” Investec said.

While Ramaphosa emerged as the leader of the ruling party, Jacob Zuma remains as head of state.

When campaigning for the presidency of the ANC, Ramaphosa articulated a number of broad reform priorities that he said would help the economy grow by 3percent next year.

He also specifically put distance between himself and the current administration, advocating a balanced macroeconomic policy that promoted growth and maintained fiscal discipline and stabilised the debt trajectory. Ramaphosa also called for reforms to the governance of SOEs through the appointment of credible boards and chief executives.

Tinyiko Ngwenya, an economist at Old Mutual Investment Group, said Ramaphosa’s victory would likely see a stronger rand, a stronger domestic bond market and relatively positive returns from the stocks market.

”If the rand’s strength is sustained it could lead to lower inflation and pave the way for interest rate cuts. However, before that is possible, markets and the Sarb will probably need to see evidence in the 2018/19 Budget in February next year that the government is committed to achieving fiscal consolidation,” Ngwenya said.

The Treasury’s previous commitment to keep to its fiscal consolidation agenda has been thrown into disarray by President Jacob Zuma’s unilateral announcement of free higher education on the eve of the ongoing ANC indaba.

Zuzana Brixiova, Moody’s lead sovereign analyst for South Africa, said while all recognise the need for reform to enhance human capital and reduce inequality, it remained to be seen how that would be achieved without further undermining already-stretched public finances.