South Africa remained committed to prudent economic policies supportive of growth and job creation, the National Treasury said at the weekend following ratings agency Fitch’s revision of the outlook on the country’s sovereign credit rating.
Fitch Ratings announced on Friday that it had affirmed South Africa’s long-term foreign and local currency credit rating at BBB+ and A respectively, but that it had revised the outlook from stable to negative.
Economy’s ‘inability to create sufficient jobs’
Purvi Harlalka, director in Fitch’s sovereigns group, told reporters that the revision “reflects the limited progress on several long-standing structural issues that have over time caused South Africa’s economic performance to fall behind its peers.
“Not least of the problems that require urgent attention is the economy’s inability to create sufficient jobs for its labour force,” Harlalka said. “This inability has not only constrained growth and kept the tax base narrow but has also caused public finances to become increasingly redistributive in an effort to address the lack of social mobility.
“The resultant narrowing of fiscal space undermines a key support to South Africa’s creditworthiness.”
Key rating drivers remain strong
The Fitch statement, however, confirmed that South Africa’s key rating drivers remained strong, and that the country’s BBB+ rating remained underpinned by the strength of its institutions relative to its peers.
“Indeed, South Africa’s gross debt to GDP ratio of 40 percent reflects a sustainable debt burden,” the Treasury said on Friday, while the country’s macroeconomic and fiscal frameworks were “set to remain robust over the medium term”.
Finance Minister’s medium term budget policy statement (MTBPS), tabled in October, set out a number of interventions aimed at boosting South Africa’s sustainable long-term growth.
State expenditure would grow moderately over the next three years, the Treasury said, while South Africa remained committed to moderating the country’s rising wage bill, and changing the composition of expenditure from consumption to investment.
Responding to global economic uncertainty
The Treasury said it viewed Fitch’s revision, which came barely a year after the agency revised South Africa’s outlook from negative to stable, in the context persistent global economic uncertainty.
“Europe, a major trading partner, accounts for more than 30 percent of our manufacturing exports is currently experiencing major economic challenges. This therefore impacts negatively on South Africa.
“Mindful of these developments, the MTBPS responds to these challenges by maintaining a delicate balance between supporting the economy while starting the process of fiscal consolidation.”
South Africa, the Treasury said, was taking steps to look for new markets for its exports. Asia now accounted for 35.9 percent of the country’s exports, and China in particular had become an important trading partner, accounting for 12.4 percent of exports.
At the same time, South Africa was growing its exports to other countries in Africa – where 7 of the world’s 10 fastest growing economies are located.