South Africa faces the risk of a second credit rating downgrade as a slowing economy delays plans to curb the budget deficit, according to Absa Bank Ltd.’s corporate and investment banking unit.
The degree to which Finance Minister Pravin Gordhan alters the fiscal targets for the next few years in the mid-term budget on Oct. 23 will be an important indicator, Peter Worthington, an economist at the investment bank, told reporters in Johannesburg today. “There is a risk that we could see some rating downgrades come though after the” budget statement, he said.
Moody’s Investors Service and Standard & Poor’s last year cut South Africa’s credit rating for the first time since the end of apartheid in 1994, concerned about the impact of violent mining strikes on the economy, slower growth and the government’s ability to narrow the budget deficit. Fitch Ratings followed with a downgrade in January. Moody’s rates South African debt at Baa1, the third-lowest investment-grade level.
Finance Minister Pravin Gordhan said in an interview on Oct. 7 the government won’t meet its 2.7 percent growth target this year. The central bank is forecasting expansion of 2 percent, which would be the slowest pace since a 2009 recession.
In his February budget, Gordhan projected a budget deficit of 4.6 percent of gross domestic product in the year through March 2014, down from 5.1 percent in the previous fiscal year. The shortfall is forecast to reach 3.1 percent in the 2016 fiscal year.
Economic growth in the third quarter will probably be weak, curbing tax receipts, Worthington said.
There “is a risk that we will see fiscal slippage relative to deficit targets for this year,” he said.