Business | Economy
South Africa seeks to avoid downgrade
Nation plans to narrow budget gap in three years as it curbs wages and boosts tax revenue
- Bloomberg
- Published: 00:00 February 24, 2012
- Image Credit: AFP
- Finance Minister Pravin Gordhan addresses the annual parliamentary meeting on the budget in Cape Town on Wednesday. He deplored the fact that countries with good records get lumped together with countries that have financial problems, especially Europe.
Johannesburg: South African Finance Minister Pravin Gordhan said a move to rein in the budget deficit faster than planned will shield the economy and prevent a credit-rating downgrade.
Moody's Investors Service and Fitch Ratings will probably remove their negative-rating outlook on South African debt, Gordhan said in an interview in Cape Town on Wednesday. The fiscal deficit is set to reach 4.6 per cent of gross domestic product in the year through March 2013, less than an October forecast of 5.2 per cent, he said in a budget speech.
Nedbank Group and Citigroup said the budget plan is a positive step after Moody's and Fitch raised concern that slower economic and higher spending may make it more difficult for the government to repay its debt.
South Africa plans to narrow the shortfall to 3 per cent in three years as it curbs state-worker wages and boosts tax revenue.
"The fact that they are showing a little more aggression in getting rid of the deficit would have improved their standings across the board," Nicky Weimar, an economist at Nedbank in Johannesburg, said.
"This budget should go a long way toward reassuring the rating agencies. They did what they had to do."
Fitch lowered the outlook on South Africa's BBB+ rating to negative from stable last month as government debt and unemployment increased. Moody's cut its outlook in November, citing "heightened political risk."
Lumped with Europe
"We are doing enough as a country for them to be able to" raise the outlook to stable, Gordhan said.
"One of the unfortunate things about countries like ourselves, which have a good record and have demonstrated the appropriate political will to manage our finances well, is that we get lumped with the problems of the rest of the world, particularly Europe."
The deficit is narrowing even as the economy is forecast to expand at a slower pace this year, mainly because inflation will boost tax earnings, Michael Sachs, chief director of fiscal policy at the Treasury, said. Economic growth will reach 2.7 per cent this year, down from an October estimate of 3.4 per cent.
"This budget is bond-positive as it allays fears of further deterioration in debt dynamics, especially from a credit rating point of view," Leon Myburgh, Citigroup strategist, said.
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