SA still faces fis­cal slip­page

Po­lit­i­cal tur­moil fu­els uncer­tainty

The Star Early Edition - - NEWS - Ka­belo Khu­malo

SOUTH Africa ran the risk of fis­cal slip­page if Fi­nance Min­is­ter Malusi Gi­gaba gave the green light for plans to de­velop nu­clear en­ergy and ex­tended gov­ern­ment guar­an­tees to ail­ing state-owned en­ter­prises (SOEs), said Fitch Group com­pany, BMI Re­search.

The firm added that South Africa, to­gether with Brazil and Turkey, had been en­gulfed in height­ened po­lit­i­cal risk over re­cent months and the out­look for eco­nomic pol­icy was very un­cer­tain.

Lisa Lewin, a global econ­o­mist at BMI Re­search, said Gi­gaba had done well since as­sum­ing of­fice in March be­cause he had re­tained the fi­nan­cial pru­dence pos­ture of his pre­de­ces­sors.

“To be fair, Gi­gaba has been rel­a­tively pru­dent so far, but things can change in the com­ing few months, like him giv­ing his sig­na­ture to the ex­u­ber­ant nu­clear deal or in­creas­ing state guar­an­tees to the al­ready in­debted SOEs,” Lewin said.

She added that the bat­tle in the rul­ing ANC be­tween the “tra­di­tion­al­ist” and the “re­formist” fac­tions was lead­ing to height­ened po­lit­i­cal risk to the coun­try’s econ­omy and was largely at­trib­ut­able to the re­vis­ing of the min­ing char­ter.

State en­ti­ties

In the Bud­get speech in Fe­bru­ary, then fi­nance min­is­ter Pravin Gord­han said the Na­tional Trea­sury had in­creased gov­ern­ment guar­an­tees to SOEs to R477.7 bil­lion in this fi­nan­cial year – from R469.9bn a year ear­lier.

Gi­gaba has on many oc­ca­sions said the Trea­sury would con­tinue to be the en­forcer across gov­ern­ment of fis­cal con­sol­i­da­tion.

The SA Re­serve Bank mon­e­tary pol­icy com­mit­tee noted in May that this year the rand would re­main “highly sen­si­tive to un­fold­ing do­mes­tic po­lit­i­cal uncer­tainty, as well as de­ci­sions by the credit rat­ing agen­cies”.

Kamilla Ka­plan, an econ­o­mist at In­vestec, said the weak­en­ing of the coun­try’s in­sti­tu­tions posed the big­gest chal­lenge to the econ­omy.

“Rat­ing agen­cies have since cau­tioned that in­sti­tu­tional weak­en­ing would con­trib­ute to fur­ther sov­er­eign credit rat­ing down­grades.

“Height­ened po­lit­i­cal and in­sti­tu­tional uncer­tainty aris­ing from the March cabi­net reshuf­fle were high­lighted as key rea­sons for the credit rat­ing down­grades by S&P Global and Fitch, and by Moody’s this month,” Ka­plan said.

Slow growth

Cabi­net last week said it had re­flected on the an­nounce­ments by the three ma­jor rat­ings agen­cies af­ter they all raised con­cerns with the slow pace of growth-en­hanc­ing re­forms, the per­for­mance of SOEs and po­lit­i­cal risks, among other is­sues.

“The cabi­net ex­pressed con­fi­dence in its in­ter­ven­tions to ad­dress the coun­try’s eco­nomic chal­lenges as well as work un­der­taken to strengthen the per­for­mance of the SOEs.

“The gov­ern­ment re­mains on track in main­tain­ing its fis­cal frame­work, en­sur­ing pol­icy cer­tainty and work­ing to en­sure in­clu­sive growth and eco­nomic trans­for­ma­tion,” the cabi­net said in a state­ment.

There have been fears about and the need to avoid a down­grade to the coun­try’s lo­cal debt to “junk” sta­tus by Moody’s and S&P Global, to pre­vent cap­i­tal out­flows and gov­ern­ment bonds be­ing af­fected

Lewin said the sav­ing grace for the coun­try’s econ­omy had been the con­tin­ued cash in­jec­tion into emerg­ing markets, which re­mained at­trac­tive to in­vestors dur­ing this pe­riod.

“To a large ex­tent the risks in the South African econ­omy have be­come known rather than un­known… The rand has broadly ap­pre­ci­ated against the dol­lar in re­cent months, de­spite the po­lit­i­cal tur­moil and we ex­pect it will re­main sup­ported in the com­ing months by yield-seek­ing cap­i­tal in­flows,” she said.

Ac­cord­ing to fig­ures from the In­sti­tute of In­ter­na­tional Fi­nance, emerg­ing markets bonds and equities worth $152bn (R1.9 tril­lion) were pur­chased by non-res­i­dents mainly from emerg­ing Asia.

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