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S. Africa Treasury Predicts Growth Pickup as Confidence Returns

  • Treasury projects economy to expand 1.5% in 2018, 1.8% in 2019
  • Fiscal-consolidation plan may stave off credit-rating cut

With a new leader at the helm and confidence improving, growth in Africa’s most-industrialized economy may accelerate to levels last seen in 2014, according to National Treasury forecasts.

South Africa’s economy is forecast to expand 1.5 percent this year, compared with the previous projection of 1.1 percent and an estimated 1 percent in 2017, National Treasury said in its 2018 budget review. Growth will probably accelerate to 2.1 percent in 2020 as measures aimed at creating policy certainty and attracting investment pay off, it said.

South Africa

2018 annual budget forecasts

Source: National Treasury

The government is battling to return public finances to a sustainable path and stave off another credit-rating downgrade, following years of stagnant growth and policy missteps that left a gaping hole in the budget. It will reconsider mining-sector policies that deterred investment, introduce telecommunications reforms, lower barriers to entry by addressing anti-competitive behavior and provide support for labor-intensive sectors, the Treasury said.

New Leader

Investor confidence started creeping back after the ruling African National Congress elected Cyril Ramaphosa as its new leader in December, paving the way for him to take over from Jacob Zuma when he resigned as the country’s president last week. The rand climbed and bond yields dropped to levels last seen in 2015.

South Africa’s foreign- and local-currency credit ratings dropped to non-investment grade last year as Fitch Ratings Ltd. and S&P Global Ratings lowered their assessments, citing policy uncertainty and concerns about the management and finances of state-owned companies.

Moody’s Investors Service has the country on review for a downgrade to junk and may make an announcement on March 23. Should Moody’s reduce the local-currency debt to non-investment grade, South Africa will exit the Citibank World Government Bond Index, sparking forced sales by investors who track the gauge and leading to outflows of as much as 100 billion rand ($8.5 billion) in the nation’s bond market, according to Citigroup estimates.

“We believe we have done enough, we have taken the tough decisions” to avoid another ratings downgrade, Finance Minister Malusi Gigaba told reporters before his budget speech. “We believe the decisions we took create a positive narrative that will improve the ratings agencies’ outlook for South Africa.”

— With assistance by Zoe Schneeweiss

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