RATINGS DOWNGRADE REMAINS A GREAT RISK FOR SOUTH AFRICA, SAYS GORDHAN

A further loss of confidence and a ratings downgrade remain to be great risks facing the South African economy, says Finance Minister Pravin Gordhan.

While a lot has been done to confront these challenges, greater collaboration between the government, business, labour and civil society is required, he said when delivering his Medium Term Budget Policy Statement (MTBPS) in Parliament here Wednesday.

Decisive action was needed to restore confidence and inspire private sector investments to boost economic growth, he said.

In the next few weeks, the international ratings agencies will review South Africa’s credit rating and coming under the microscope will be the country’s institutions, public finances and debt levels.

The economy is weaker than previously estimated, while confidence in the economy is low, which has led to subdued private investment and this translates to higher unemployment and falling tax revenue.

It has also frustrated government efforts to reduce borrowing, and ultimately keeping the budget deficit in check.

Gordhan said the budget deficit stood at 3.4 per cent of gross domestic product (GDP) for the 2016-2017 fiscal year and a collaborative effort among all stakeholders was critical to help avert a ratings downgrade.

“We must look frankly at ourselves, and ask what is working for us and what is not, and what needs to change. It is not just that our economic outlook is distressed, and there is the possibility of downgrades in credit ratings and the rising cost of debt,” he added.

“It is not just the most severe drought in decades, and rising food prices. It is not just the unsettling effect of legal matters and court challenges. These are considerable challenges, Honourable Speaker, but we can address them, rationally, deliberately, and through the appropriate procedures.”

This year’s Medium Term Budget Policy Statement is presented under precarious conditions but it signals optimism, said Gordhan, who noted that the global economy is expected to recover which could improve demand for locally manufactured goods while the weak Rand is expected to be supportive of exports and the easing drought conditions, improved electricity supply and a rebound in commodity prices are expected to also support a recovery.

Experts say the Finance Minister may have ticked the boxes for a favourable ratings outcome but the current political environment may not help matters, as it is undermining the perceived independence and effectiveness of institutions.

The financial risk posed by State-owned enterprises (SOEs) is also be a factor. The National Treasury says interventions to support SOEs must be consistent with sustainable public finances, and their demonstration of sound business planning and good governance.

Source: NAM NEWS NETWORK.