Fitch says 2017 Budget maintains fiscal stance

Fitch Ratings said on Thursday that South Africa’s 2017/18 budget broadly maintained fiscal settings and macroeconomic forecasts, and clarified revenue measures promised last year.

Fitch said the South Africa’s budget, presented by Finance Minister Pravin Gordhan on Wednesday, broke the trend of growth forecasts being lowered in successive budgets and Medium-Term Budget Policy Statements (MTBPS), a major reason for the substantial deterioration in fiscal indicators in recent years.

The ratings agency said the budget showed that deficit reduction remained an important policy aim, but political and social pressures would test the government’s commitment to fiscal consolidation.

The consolidated 2017/18 budget deficit projection of 3.1% of GDP remained unchanged from the MTBPS, while deficits in the following two years were raised only marginally, to 2.8% and 2.6%.

Fitch said sustainable consolidation remained reliant on a still-fragile recovery of GDP growth.

Gordhan’s budget forecast GDP growth to rise to 1.3% in 2017 from 0.5%, two percent in 2018 and 2.2% in 2019.

The expenditure ceilings, a core part of the fiscal framework, were raised for the first time since their introduction.

Fitch said it did not believe this signalled any change in the commitment to consolidation although it highlighted how tight room for cutting expenditure had become.

“The main challenge to fiscal consolidation comes from factional tensions in the governing African National Congress (ANC), which are diverting political energy from economic reform and may lead to policies that raise fiscal deficits or undermine the stability of state-owned enterprises,” Fitch said.

“We think political risks to governance and policy-making will remain high at least until the ANC’s electoral conference in December. This is reflected in the Negative Outlook on South Africa’s ‘BBB-‘ sovereign rating.”

– African News Agency

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