Picture: Reuters/Mike Segar

Pretoria - The South African government is committed to addressing the structural constraints to growing the economy and improving public finances, and restoring business and consumer confidence and catalysing inclusive growth are the top priorities, the National Treasury said on Saturday.

On Friday, ratings agency S&P Global lowered South Africa’s long-term foreign and local currency debt ratings by one notch each to "BB" and "BB+" respectively, citing weak real nominal GDP growth that had led to further deterioration of South Africa’s public finances beyond the rating agency’s previous expectations.

Nonetheless, S&P Global changed the outlook to stable from negative, saying the stable outlook reflected their view that South Africa's credit metrics would remain broadly unchanged next year, and political distraction could abate following the African National Congress's elective conference in December, helping government focus on designing and implementing measures to improve economic growth and stabilise public finances.

Also on Friday, Moody's Investors Service placed South Africa’s long-term foreign and local currency debt ratings of "Baa3" on a 90-day review for a downgrade. The ratings carried a negative outlook.

According to Moody’s, the decision to place South Africa’s rating on review for a downgrade was prompted by a series of recent developments which suggested that South Africa’s economic and fiscal problems were more pronounced than Moody’s had previously assumed. 

According to the rating agency, growth prospects were weaker and material budgetary revenue shortfalls had emerged alongside increased spending pressures.

Moody's further indicated that the review would allow it to assess the South African authorities’ willingness and ability to respond to the above rising pressures through growth-supportive fiscal adjustments that raised revenues and contained spending; structural economic reforms that eased domestic bottlenecks to growth; and improvements to state-owned enterprises (SoEs) governance in light of government exposures to contingent liabilities.

The National Treasure said in a statement on Saturday government had noted the decisions of S&P and Moody’s and was mindful of the implications on the economy and investor sentiments in future. Extensive engagements were held between all the rating agencies and government, both prior to and following the 2017 medium-term budget policy statement (MTBPS) on October 25.

"There can therefore be no doubt of government’s strong commitment to addressing the structural constraints to growing the economy and improving public finances. The Presidential Fiscal Committee (PFC) is seized with the task of restoring business confidence in the immediate term and executing decisively growth-enhancing measures previously announced," Treasury said.

"Speculative grade ratings have negative implications for economic growth, borrowing costs for the economy as a whole, state-owned companies’ ability to borrow, and the ordinary person on the street."

"Restoring business and consumer confidence and catalysing inclusive growth is the top priority of government. To this end government is working urgently and diligently on practical steps to provide the necessary policy certainty, environment conducive to investment, and predictability that the country so desperately needs."

Decisive actions in managing government spending and closing the revenue gap were critical for achieving sound public finances.

"In the MTBPS chapter on fiscal policy we indicated that additional spending cuts or tax increases of R40 billion (0.8 per cent of GDP) would be required from 2018/19 in order to stabilise public debt below 60 percent of GDP over the next decade. Over the next two weeks, the PFC and cabinet will consider a package of measures to this effect to be implemented from 2018. Specific details on these measures will be announced in the 2018 budget," Treasury said.

The 2018 budget would outline "decisive and specific" policy measures to strengthen the fiscal framework as an important contributor to improved confidence of all stakeholders and a return to inclusive growth.

"While progress has been achieved on most of the 14 confidence-boosting measures, decisively strengthening governance at Eskom – with the appointment of a highly trusted and capable board as a first step – was an urgent priority."

"Government will address the root causes of the revenue gap of R50 billion arising from the underperforming economy and a possible erosion of revenue collection capability. In this regard, a judicial commission of inquiry is being undertaken."

Treasury remained the centre where budgeting occurred as provided for in the Constitution. It was also important to clarify that the mandate paper developed by the performance, monitoring, and evaluation department served to set priorities for the whole of government, ensuring alignment with the national development plan.

The PFC streamlined decision-making and provided the necessary authority to co-ordinate and ensure adherence to the fiscal framework by the entirety of government, driven at the cabinet level. 

"This in no way undermines the role of National Treasury in the budget-setting process. Going forward, government will continue to engage with all stakeholders and the general public on all key developments as progress continues towards the finalisation of the 2018 budget," the Treasury said.