Ratings agencies see positive side of budget
• Trio applaud evidence of fiscal consolidation but warn that political and social pressures could test commitment
All three international credit ratings agencies have commended the consistency between last week’s budget numbers and October’s medium-term budget, which are seen as evidence of the state’s continued commitment to fiscal consolidation. The most positive comments came from S&P Global Ratings, whose SA MD Konrad Reuss said the fiscal side of the budget was “certainly very reassuring”.
All three international credit ratings agencies have commended the consistency between last week’s budget numbers and October’s medium-term budget, a factor seen as evidence of the government’s continued commitment to fiscal consolidation.
However, the agencies still have SA on negative outlook and will decide by the end of this year whether to downgrade the country’s credit rating or take it back to a stable outlook.
In post-budget comments, they have again flagged political pressures and government guarantees to ailing stateowned enterprises as risks to the rating.
The most positive comments came from S&P Global, whose SA MD, Konrad Reuss, said the fiscal side of the budget was “certainly very reassuring”, with the deficit trajectory showing only minimal slippage in the outer years and the debt ratio marginally better than in the medium-term policy statement.
“The budget is testimony to a continued strong commitment to fiscal consolidation,” he said.
S&P is regarded as the riskiest of the ratings for SA since it has SA’s foreign currency rating at just one notch above subinvestment grade status and on negative outlook.
Fitch, which has the same rating as S&P, was more wary, saying on Thursday that although the budget showed that deficit-reduction remained an important policy aim, political and social pressures would test the government’s commitment to fiscal consolidation.
Fitch senior director Jan Friederich, who is the lead analyst on SA, said Wednesday’s budget broke the trend of growth forecasts being lowered in successive budget and medium-term budget policy statements – a trend that had been a major reason for the substantial deterioration in fiscal indicators in recent years.
Friederich highlighted the risks posed by “factional tensions in the governing African National Congress, 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 expressed particular concerns about the substantial rise in contingent liabilities, which reflect higher guarantees to state-owned enterprises.
Moody’s vice-president and lead sovereign analyst on SA, Zuzana Brixiova, also noted the consistent fiscal consolidation targets amid “challenging conditions” but warned that “while government guarantees relative to GDP are also projected to stabilise, their actual drawdowns are rising and represent increasing risks to the government’s fiscal position”.
In his budget, Finance Minister Pravin Gordhan projected a consolidated budget deficit of 3.1% for 2017-18, the same as in October, rising to 2.8% and 2.6% in the next two years, with the consolidated primary budget balance for 2016-17 expected to turn positive, rising to a surplus of 1.1% of GDP in 2019-20.
The primary budget balance, which shows the gap between revenue and noninterest expenditure, is the main fiscal ratio Treasury watches as a guide to whether and when the public debt ratio will start coming down.
WEDNESDAY’S BUDGET BROKE THE TREND OF GROWTH FORECASTS BEING LOWERED FITCH EXPRESSED CONCERNS ABOUT THE SUBSTANTIAL RISE IN CONTINGENT LIABILITIES