South Africa is committed to reverse the tide of state-owned companies bleeding the fiscus, getting rid of political and policy uncertainty and resolving the deadlock on the country’s new mining charter.
This was the message Finance Minister Malusi Gigaba said he would convey to rating agencies during a conference call on Wednesday after delivering the medium-term budget policy statement.
“We know what we need to do and we are willing to take tough decisions and make difficult choices that is going to ensure that we maintain the fiscal framework and maintain the expenditure ceiling,” Gigaba said to reporters shortly after delivering his speech in Parliament.
“I think much of the levers that we need to grow the South African economy are within our own power and working harder, eliminating procrastination, eliminating policy uncertainties by dealing with SOE (state-owned enterprises) debt, resolving the impasse on the mining charter and dealing with governance and financial management issues at state-owned companies, I’m convinced that we will boost the confidence required and that message will come out very strong.”
In his speech, Gigaba said South Africa’ budget deficit would grow from the 3.1 percent February budget target to 4.3 as a result of slowing growth, a revenue shortfall of R50.8 billion and shoring up struggling state-owned enterprises.
Rating agencies would be watching how government responds to governance and financial mismanagement at state-owned enterprises, including South African Airways, the South African Post Office and Eskom – the country’s power utility and its most pivotal parastatal.
The agencies are also expected to keenly observe how an impasse over a new mining charter would be resolved. The matter has landed up in court with government and mining houses differing on how to improve black ownership in the industry.
Fitch Ratings is the only ratings firm that has South Africa’s local and foreign currency debt in sub-investment grade, while S&P Global has South Africa’s foreign currency debt in junk, with local currency debt one notch above junk.
Moody’s Investor Services has both South Africa’s local and foreign currency debt one notch above junk. Moody’s and S&P are scheduled to review the country’s ratings on November 24.
South Africa slashed its projected gross domestic product (GDP) growth forecast for 2017 by almost half, from 1.3 percent to 0.7 percent, following a recession in the fourth quarter of 2016 and the first quarter of this year.
Growth is subsequently expected to recover slowly, reaching 1.9 percent in 2020.
The National Treasury has generated three alternate scenarios quantifying some of the risks to the baseline economic forecast.
Two scenarios involve downgrades to the local currency debt by global ratings agencies.
In the third scenario, global growth improves by an annual average of 0.5 percentage points over the medium term and export commodity prices are five percent higher than the baseline.
If that trajectory continues, Treasury expects growth to reach 1.4 percent in 2018 and 2.4 percent in 2020.
The International Monetary Fund (IMF) expects global growth to average 3.6 percent this year and 3.7 percent in 2018 as a result of recovery in demand and trade in Europe and Asia.