Azar Jammine, chief economist at Econometrix. Photo by Leon Nicholas.

Two leading economists warned last week that South Africa’s credit rating could be at risk after data from the Treasury showed government finances worsened in July.

Econometrix chief economist Azar Jammine said on Friday that official figures for July showed growth in government revenue plummeted in the month while spending accelerated. Citi strategist Leon Myburgh said the monthly deficit should have been about R48.3 billion, based on recent trends, but came in at R57.5bn.

The deficit is the gap between revenue and spending and can only be covered by borrowing. The ratings assigned by agencies determine the cost of the debt. The lower the rating the higher the interest bill, which is met by the taxpayer.

Jammine said leading credit rating agencies had already revised the outlook on the country’s sovereign rating from stable to negative.

A team from Moody’s Investors Service, which has the country on A3 and was first to revise the outlook in November last year, visited South Africa in July. Teams from Fitch and Standard & Poor’s, both of which have assigned government bonds a BBB+ rating, will visit over the next few months.

Two events are likely to determine whether a downgrade materialises: the medium-term budget policy statement next month and the ANC leadership contest in Mangaung in December. All agencies cited concerns that political pressures to increase spending could prevent the government from meeting its target of reducing the annual budget deficit to reasonable proportions within two years.

Jammine noted that the International Monetary Fund recently voiced similar fears.

Both economists said in the first three months of the fiscal year, April to June, the figures on government finance were encouraging, with an overrun of revenue while spending fell short of projections.

Myburgh said the disappointing revenue outcome in July was largely due to lower growth in personal income tax – 1 percent year on year versus 11.3 percent in June.

SA Revenue Service (Sars) spokesman Adrian Lackay said the dip in personal income tax was due to lower bonuses paid in the banking, transport and retail sectors and to “substantial increases in the value of tax refunds to individual taxpayers in July compared to refunds paid in July 2011”.

He attributed the trend to “increased effectiveness of the Sars efforts to modernise the income tax system and the subsequent benefit to taxpayers in the form of much quicker tax refunds”.

Lackay noted that as the “submission rate of income tax returns compresses during the latter part of the 2012 tax season, so too will the payment of tax refunds”.

Though the July acceleration in spending ensured that cumulative growth in the four months was higher, at 9.5 percent, than the 8.8 percent projected, the deficit target for the year, set at 4.6 percent of gross domestic product in February, is still achievable.