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Feb 27 (The following statement was released by the rating agency)
The South African budget showed the government's fiscal consolidation plans are on track,
despite weaker GDP growth, financial market volatility and forthcoming elections, says Fitch
Ratings. Medium-term fiscal and economic challenges remain, however.
By maintaining nominal expenditure ceilings (in terms of main budget,
non-interest spending) as set out in the 2012 budget, combined with some revenue
over-performance, Minister of Finance Pravin Gordhan was able to revise down
budget deficit forecasts. The National Treasury forecast the national budget
deficit at 4.0% of GDP for 2013/14, down from 4.2% in October's Medium-Term
Budget Policy Statement (MTBPS), 4.0% in 2014/15 (from 4.1%), 3.6% in 2015/16
(from 3.8%) and 2.8% in 2016/17 (from 3.0%).This is a contrast to recent
budgets, where deficit projections have tended to be revised upwards.
Nevertheless, the National Treasury projects net national (central) government
debt to rise from 39.7% of GDP in 2013/14 and stabilise at 44.3% of GDP in
2016/17, marginally higher although earlier than the 44% of GDP in 2017/18 in
the MTBPS. Gross national government debt is projected to reach 48.3% of GDP in
The government is seeking to steer a course between fiscal consolidation that
would stabilise the debt ratio, and supporting the subdued economy, which is
growing below potential and being buffeted by shocks. Meeting budget deficit
targets over the medium-term will be challenging and depend on a revival in GDP
growth and shrinking expenditure from 33.2% of GDP in 2013/14 to 31.9% in
2016/17, despite strong social pressures and moderately rising debt interest
costs. This highlights the difficult decisions the government will face,
particularly if growth continues to underperform expectations.
The National Treasury revised down its forecast for GDP growth for 2014 to 2.7%
(from 3.0% in the MTBPS) while maintaining its forecasts for 2015 at 3.2% and
2016 at 3.5%. The outturn for 2013 of 1.9% was less than the forecast of 2.1% in
the MTBPS, but tax revenues were ZAR4bn higher than expected. The Treasury is
forecasting little narrowing in the current account deficit (from 6.1% of GDP in
2013 to 5.9% in 2014 and 5.8% in 2015), despite the depreciation of the rand.
Material slippage against budget targets or a failure to narrow the current
account deficit would lead to rising public and external debt ratios and put
pressure on the sovereign rating. A significant and sustained reduction in the
twin deficits could lead to positive rating action.
The budget restated the importance of the National Development Plan (NDP). It
also spoke about re-prioritising spending, with a shift towards education and
infrastructure. A white paper on National Health Insurance and Treasury paper on
its financing will be presented in cabinet soon. Announcements related to the
Davis Tax Committee's review of South Africa's tax policy framework were limited
to small businesses.
We would expect a clearer picture of the political will and capacity for
structural reform to emerge after parliamentary and presidential elections in
May. Faster GDP and employment growth, for example, bolstered by structural
reforms such as those in the NDP, would help to support creditworthiness.
Fitch affirmed South Africa's foreign currency sovereign rating at 'BBB' with a
Stable Outlook on 18 December 2013. The next scheduled review of the rating is
on 13 June 2014.