JOHANNESBURG - South Africa’s Finance Minister Nhlanhla Nene said on Tuesday his predecessor’s budget last week might not prevent further credit ratings downgrades as new President Cyril Ramaphosa tries to revive the economy.
The state of government finances forced the Treasury last week to take the politically risky step of raising value-added tax for the first time in 25 years.
Ramaphosa, 65, hailed a “new dawn” after his inauguration and has promised to fight corruption.
The move was welcomed by ratings agencies and markets priced in expectations that it would enable South Africa to hang on to its last investment grade rating in a Moody’s review due soon.
Ramaphosa announced Nene’s return on Monday in a reshuffle that saw the removal of some ministers allied to former president Jacob Zuma.
Nene, who served as finance minister from May 2014 to December 2015 before being sacked by Zuma, was asked during a radio interview whether the budget would stave off further downgrades that could make it more costly for South Africa to borrow. “I wouldn’t say that yet,” Nene told Talk Radio 702.
S&P and Fitch last year downgraded South Africa’s credit ratings to sub-investment grade after Zuma fired Pravin Gordhan from his second stint as finance minister.
Nene’s return to the Finance Ministry comes after Zuma was ordered to step down by his own African National Congress (ANC) party and replaced by Ramaphosa almost two weeks ago.
Ramaphosa told traditional leaders meeting in parliament on Tuesday that land reform needed to be attended to “immediately” and the government was starting talks with the mining sector on a new industry charter.
Two decades after the end of apartheid, the ANC is under pressure to redress racial disparities in land ownership where whites own most of the land.
Zuma’s nine years as president were marked by corruption allegations, economic mismanagement and disputed appointments. Zuma denies any wrongdoing.
Market reaction to the cabinet shake-up was muted but there has been a strong rally since Ramaphosa was elected ANC president in December, with the rand gaining 14 percent since then, hitting three-year highs on Monday.
CALL OF DUTY
The rand was weaker on profit-taking after rallying after Monday’s cabinet reshuffle, with investor focus switching to the first U.S. congressional testimony by new Federal Reserve Chairman Jerome Powell later in the session.
Asked about his priorities, Nene, who will be formally sworn-in later, told Reuters: “I will still have to sit down and familiarize myself with the budget.”
During his previous tenure as finance minister, Nene was keen to rein in spending. He was reluctant to rubber-stamp Zuma’s plan to build more nuclear power stations at a cost of up to $100 billion, a project Ramaphosa has said South Africa cannot afford.
After he was sacked, Nene took up roles in the private sector, including that of board member at fund manager Allan Gray.
ANC Treasurer General Paul Mashatile said: “What’s important for us is stabilising public finances and that is his strength.”
Nene, a soft-spoken technocrat who is respected by the markets, told 702 his reaction to his reappointment was “mixed”.
“What superseded my reaction was when public service calls, all other things are no longer a priority,” he said.
Ramaphosa told reporters in parliament on Tuesday: “It’s a cabinet that takes into account the various strengths we’ve got in government.”
Asked if he had to make compromises, Ramaphosa said: “No, no, no. This is a transitional cabinet that is going to take us to the next elections (due mid-2019).”
Popular with investors, Gordhan was brought back to cabinet in the public enterprises department, which oversees around 300 state-owned firms, including loss-making South African Airways and cash-strapped power utility Eskom.
Analysts said Ramaphosa sought to keep different ANC factions represented within the cabinet. Ramaphosa retained several ministers appointed by Zuma but demoted them from key government departments.
“The boost to the economic cluster by the appointment of Gordhan and Nene will be well received by financial markets and rating agencies,” NKC African Economics said in a note.
Razia Khan, chief economist for Africa at Standard Chartered, said: “It was clear there was more than a nod to party unity in the cabinet appointments.”