JOHANNESBURG - The national Treasury yesterday embarked on charm offensive to assure global rating agencies that South Africa was on the road to recovery.
The Treasury’s technical team engaged officials from Fitch and Moody’s to inform them of the prudent measures announced by Finance Minister Malusi Gigaba in the widely accepted budget speech on Wednesday.
Treasury’s spokesperson
Mayihlome Tshwete said officials from Fitch and Moody’s - which put the country on review for a downgrade in November - quizzed the Treasury about the Budget Gigaba tabled this week.
Tshwete said the Treasury told the agencies that South Africa was stabilising debt and dealing with issues of governance.
He said the country’s business confidence was also improving.
“We are expecting high economic growth,” Tshwete said “South Africa remains a good place for investment.”
Slippage
In a move to contain fiscal slippage, Gigaba yesterday announced a massive R85billion reduction in government expenditure over the next three years.
This as the economy is trying to clamber back to investment grade after ratings agencies Fitch Ratings and S&P Global downgraded the country’s credit rating to junk status last year, citing political uncertainty, among other reasons.
Gigaba announced a one percentage point hike in VAT to 15percent, which would inject an extra R23bn revenue into state coffers. The move has been rejected by trade unions as regressive.
The Finance Minister said the Treasury also planned to raise a further R13bn through personal income tax.
On Wednesday Gigaba delivered his maiden budget against then backdrop of recovering commodity prices, rising oil prices and improved domestic economic outlook.
The Treasury said while the reductions in spending would cause economic discomfort, they were a necessary evil.
“The medium-term growth outlook has improved since the 2017 (medium-term budget policy statement), due to an expected increase in private investment as a result of improved confidence,” the National Treasury said on Wednesday.
Gigaba revised the 2017 gross domestic product projection from 0.7percent estimated in the medium-term budget policy statement, which he presented in October, to more than 1percent.
He said the government anticipated the economy to grow at 1.5percent this year, 1.8percent next year and 2.1percent in 2020.
Ian Cruickshanks, chief economist at the SA Institute for Race Relations, said South Africa was desperate to have the junk status ratings by Fitch and S&P Global improved.
“An improved credit rating will mean access to significant capital at a cheaper rate,” said Cruickshanks, adding that the Budget demonstrated that the government was planning to live according to its means.
“Following the Budget, we have room for hope to be more positive about our sovereign ratings,” said Cruickshanks.
Independent economistUlrich Joubert said the ratings agencies would be happy with the Budget.
“That said, I do not think Fitch and S&P will reverse their decisions. They will, however, not put us further into negative territory,” he said.