Thu Oct 24, 2013 6:34am EDT
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Oct 24 (Reuters) - (The following statement was released by the rating agency)
Further downward revisions to growth forecasts highlight the increasingly difficult environment the South African fiscal authorities face in balancing fiscal prudence against counter-cyclical policy, and the economic and social challenges the authorities will face if growth remains weak, says Fitch Ratings.
The Medium-Term-Budget Policy Statement (MTBPS) maintains the tight expenditure ceilings set out in the 2013 Budget so that the budget deficit for 2013/14 is estimated at 4.2% of GDP. This is little changed from the target announced in the February 2013 budget on a like for like basis, despite revenue underperformance. Technical changes to the budget accounting in line with the IMF's GFS Manual 2001, which bring "extraordinary receipts and payments" above the line, result in a lower deficit compared with the headline figure of 4.6% of GDP announced in February.
In contrast, medium-term deficit projections were revised up, largely due to weaker revenues. This underscores the pressures on the South African budget and the risks to medium-term deficit-reduction targets, which depend on a recovery in economic growth and tight expenditure control. The budget deficit for 2015/16 was revised up to 3.8% from 3.1% in February 2013 on a like for like basis. The medium-term deficit target of 3% was pushed back a further year to 2016/17, despite the authorities committing to maintaining expenditure ceilings until 2016/17.
The deterioration in the medium-term budget outlook will see total gross national government debt as a percentage of GDP rising faster than previously predicted, increasing from an estimated 44.8% of GDP in 2013/14 to 47.3% in 2015/16, against a projection of 44.6% in February. Debt is now only expected to peak beyond the MTBPS framework. The MTBPS paints an even weaker picture for economic growth and provides little comfort that the economy will revive sufficiently to support robust job creation. GDP growth was revised down to 2.1% for 2013 (compared with 2.7% at the time of the budget and 3% in the 2012 MTBPS). Growth forecasts for 2014 and 2015 have also been revised down to 3% and 3.2% respectively from 3.8% and 4.1% at last year's MTBPS.
The MTBPS provides a realistically sober assessment of the challenges South Africa faces. As in recent years, it highlights the need to boost job creation, invest in infrastructure and improve the efficiency of government spending. Despite the National Development Plan again having a prominent place in the speech, few of the plans announced under the auspices of the NDP are new. Timely and successful implementation will be required for it to deliver on its goals.
As we have stated previously, failure to generate faster GDP growth or material slippages against MTBPS fiscal consolidation plans would add to downward pressure on the rating.
In January 2013 we downgraded South Africa's Long-Term Foreign Currency IDR to 'BBB'/Stable from 'BBB+' and the Long-Term Local Currency IDR to 'BBB+'/Stable from 'A'.
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