Ratings agency S&P needs to see more progress on the economic reforms to which the government committed in June for the agency to affirm South Africa’s sovereign credit rating on December 2.
S&P global ratings associate director Gardner Rusike said yesterday its decision to affirm the credit rating in June at BBB-, the lowest investment-grade level, was supported by the impetus from the government to implement reforms to stimulate growth.
“Since then we have seen little progress on the things the government said they would like to do,” he said.
S&P would like to see the government issue a progress report to indicate how the economic growth outlook had improved in the medium term and business confidence had increased.
Slow economic growth not only hurt South Africa’s wealth levels, which had declined in dollar terms, it also had implications for the fiscal trajectory.
The revenue gap had widened since February, as tax revenue was linked to the performance of the economy, Rusike said.
The Treasury widened its budget deficit forecast to 3.4% of GDP in this month’s medium-term budget, from the 3.2% forecast in the February budget.
S&P took comfort in the expenditure ceilings that were in place, which would mitigate the effects of the deficit, he said.
State-owned enterprises posed a further risk to the fiscal and debt burden.
While the Treasury had tried to impose broader reforms on state-owned companies in exchange for financial support, there needed to be greater political will to implement these reforms, Rusike said.
S&P rated the strength of South Africa’s institutions as neutral.
Checks and balances in the economy were provided primarily by the judiciary and not by other arms of state, while political infighting could undermine the government’s commitment to making the right policy choices, as well as the pace at which this happened, he said.
“It is important that government pulls together.”