‘Don’t punish us. We’re fine’

2012-02-25 09:44

Finance Minister Pravin Gordhan’s budget speech launched a pre-emptive strike on credit rating agencies, which last year raised doubts about South Africa’s ability to repay its growing debt.

Gordhan’s speech reiterated that, despite the outlook of the rating agencies, the country’s finances were strong.

This week, Gordhan revealed government would take steps to boost revenue and trim the budget deficit to 3% (R121.5 billion) of the gross domestic product by 2014 from 4.8% (R142.3 billion) this year. The deficit is the difference between the state’s revenue and its expenditure.

In a report by financial news agency Bloomberg, Gordhan vented his frustration about rating agencies lumping South Africa with the sovereign credit crisis in Europe that has left debt-stricken countries such as Greece, Ireland, Spain, Portugal and Italy having to impose unpopular austerity policies to curb unsustainable spending.

“One of the unfortunate things about countries like ourselves, which have a good record and have demonstrated the appropriate political will to manage our finances well, is that we get lumped with the problems of the rest of the world,” Bloomberg quoted Gordhan as saying.

Last November, Moody’s Investors Service downgraded its outlook on South Africa’s A3 local and foreign currency government debt ratings to negative from stable. In justifying its decision, the ratings agency expressed concerns about the talk of greater state involvement in the economy, which could result in uncontrolled spending.

Last month Moody’s peer, Fitch Ratings, followed suit and lowered the outlook on South Africa’s BBB+ rating to negative from stable, citing deteriorating external finances, slow economic growth and high unemployment as its reasons.

Gordhan felt that South Africa was being punished for the sins of others because credit downgrades invariably lead to lenders imposing higher interest on countries with poor credit scoring. They also help foreign investors when deciding whether to invest in a country.

South Africa borrowed more than it did six years ago.

The massive increase in infrastructure spending, spearheaded by state-owned enterprises (SOEs) power utility Eskom, and transport and logistics parastatal Transnet, led to the public sector borrowing requirement jumping to 7.1% of GDP this year from 4% in 2008.

In 2008, the state and its SOEs borrowed R91.1 billion from the financial markets and this year they were expected to borrow R235.1 billion.

Countering the perception held by the agencies, the finance minister predicted a steady growth in the economy and state revenues over the next three years. He said the economy would grow 3% this year, rising to 4.3% in 2014. On the other hand, advanced economies such as the US and Western Europe were projected to grow at a snail’s pace of 1.2% this year.

An inspection of South Africa’s fiscal position showed that the state would generate R904.8 billion in revenue this year, R1 trillion in 2013 and R1.1 trillion in 2014. State spending would reach R1 trillion this year, rising to R1.2 trillion in 2014.

While South Africa needed a good credit score in order to borrow cheaply offshore, it was not heavily reliant on overseas markets for funding.

Gordhan reminded the rating agencies of this fact.

“South Africa has deep and liquid capital markets, through which long-term capital can be raised at competitive rates by government, SOEs and the private sector. Our development finance institutions are capable of raising capital and co-financing investments of the private sector, state entities and municipalities,” he said in his budget speech.

Johann Els, senior economist at Old Mutual Investment Group SA, said the Treasury had no choice but to keep the budget deficit low, otherwise rating agencies would punish South Africa.

“If there is further fiscal slippage and they lift the headline numbers to 5.5% or 5.7%, the markets won’t like it, nor will the ratings agencies. I think that would be a move in the wrong direction,” he said.

Join the conversation!

24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions.

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
0 comments
Comments have been closed for this article.

Inside News24

 
/News

Book flights

Compare, Book, Fly

Traffic Alerts
There are new stories on the homepage. Click here to see them.
 
English
Afrikaans
isiZulu

Hello 

Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.


Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.

Settings

Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.




Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.