S. Africa to Stick to Fiscal Path Even as ANC Support Falls

  • Treasury will maintain expenditure ceiling over medium term
  • Government will continue to work with business and labor

South Africa’s government will stick to the fiscal targets and objectives set out in the budget even as the ruling African National Congress’s support fell in last week’s election, the National Treasury said.

“Government remains committed to implementing fiscal consolidation and returning public finances to a sustainable path,” the Treasury said in an e-mailed statement on Monday. “Government’s track record of achieving fiscal targets lends weight to future fiscal plans, in particular that of maintaining the expenditure ceiling over the medium term.”

There is a risk that the ANC could turn to more populist approaches to address rising voter dissatisfaction after the results of the Aug. 3 municipal election showed the party’s support dropped to the lowest since it swept to power under Nelson Mandela in 1994, Fitch Ratings Ltd. said on Aug. 5. This may include spending measures that could require breaching expenditure ceilings or “redistributive regulatory policies” that might undermine economic growth, Fitch said.

Fitch and S&P Global Ratings affirmed South Africa’s long-term foreign currency rating at BBB-, one level above junk, in June and said the government must take decisive measures to bolster growth, quell policy uncertainty and end political turmoil to avoid a future downgrade. The economy won’t expand this year, according to the central bank.

Moody’s Investors Service kept South Africa at two levels above non-investment grade in May after putting its rating on review for a downgrade. While the election results may raise spending pressure, the growth of the middle class and increased urbanization mean voters will increasingly hold the government accountable for implementing growth-orientated policies, which would strengthen the nation’s credit quality, Moody’s said in an e-mailed report Monday.

Finance Minister Pravin Gordhan pledged in his February budget to narrow the fiscal deficit to 2.4 percent of GDP by 2019, from 3.9 percent last year, and limit gross debt to 50.5 percent of gross domestic product in three years by reining in spending and increasing taxes. Gordhan and President Jacob Zuma have met with business and labor leaders since February to come up with measures to improve output and confidence and retain the nation’s investment-grade credit rating.

“Government will continue to pursue the initiatives that it has been working on with labor, business and community,” Treasury Director General Lungisa Fuzile said in a sound clip accompanying the statement. The government “will fast-track the implementation” of reforms at state-owned companies and investment in economic infrastructure, he said.

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