JOHANNESBURG – Fitch Ratings on Tuesday became the first rating agency to pour cold water on President Cyril Ramaphosa’s R50 billion blueprint to revive the battered economy, warning that low growth would force it to reassess the country's credit rating.
Fitch said measures announced by Ramaphosa last week would fall short of having the desired effects.
Jan Friederich, a senior director for sovereigns at Fitch, said the economic plan would not deliver a significant boost to the ailing economy that is currently going through its first recession since 2009.
“Low trend growth is a persistent sovereign credit weakness for South Africa, reflected in the country's rating of BB+,” Friederich said.
“How fiscal policy evolves in response to weak growth will remain an important part of our sovereign rating assessment.”
However, the agency said government revenue has held up well despite the economic contraction.
Fitch also slashed South Africa's 2018 growth forecast to just 0.7 percent from 1.7 percent previously.
This was the second time the firm cut South Africa's growth in the past four months.
Alan Mukoki, chief executive of South African Chamber of Commerce and Industry (Sacci), said the country needed to translate policy, plans and ideas into actual outcomes that could be measured and monitored.
“Sacci looks forward to hearing more detail on how many jobs would be created, where the funding would be reprioritised from, and how new legislation will work more effectively than existing policy,” Mukoki said.
Ramaphosa has identified South Africa's low investment spending as a key drag on economic growth.
Total capital spending in South Africa – by both the public and the private sector – is equivalent to about 19 percent of the gross domestic product. A low figure compared to fast-growing emerging markets elsewhere.
“The package will succeed to the degree that it ultimately rebuilds consumer and business confidence and strengthens the economic environment within which investment decisions have to be taken,” said Raymond Parsons of the North-West University School of Business.
In another blow, data from the South African Reserve Bank showed that household consumption expenditure growth contracted for the first time in two years in the second quarter as the effects of the debilitating successive fuel price hikes began to curb spending.
Lara Hodes, an economist at Investec, said the real decline in household spending could be attributed to a drop in discretionary spending
The central bank last week gave embattled consumers a reprieve when it kept the repurchase rate unchanged at 6.50 percent.