Pretoria - Finance Minister Malusi Gigaba postponed a briefing on Monday morning, which would have discussed the way forward for South Africa's economy, to attend an ANC leadership meeting.
The minister was supposed to speak on the interventions that the government would embark on to address challenges facing the economy, according to a statement issued by Treasury. The proposed interventions would be undertaken within the current budget framework, the statement said.
But on Monday Treasury cancelled Gigaba's briefing, citing an urgent ANC leadership meeting. Instead the minister would meet with the Economic Cluster on Tuesday, to develop a “comprehensive response programme” to economic challenges.
This follows last week's news that the country is in recession after the GDP contracted for two consecutive quarters. On Tuesday Statistics South Africa (StatsSA) showed that GDP contracted 0.7% in the first quarter of 2017, after contracting 0.3% in the last quarter of 2016. The economy only grew by 0.3% in 2016.
Economists have revised down their growth expectations to below 1%.
In addition, rating agency Moody’s on Friday downgraded the long term foreign and local currency debt ratings to Baa3, one notch above junk status. The rating agency also maintained a negative outlook on the back of low growth concerns, policy uncertainty and fiscal slippage.
Rating agencies Fitch and Standard and Poor's (S&P) also earlier maintained their sub-investment ratings of BB+. Fitch changed the outlook to stable, but S&P maintained a negative outlook due to political risks.
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Several analysts Fin24 spoke to said that in order to achieve faster economic growth, the country needs to address confidence levels to ensure fixed investment.
The “noisy politics” have been recognised by rating agencies as impacting confidence levels negatively and “trapping” South Africa in a low growth environment, said Sanisha Packirisamy, economist at Momentum Investments.
Continued low growth and increasing government debt and contingent liabilities would trigger more negative ratings actions, she explained.
Political and economic policy uncertainties weigh down sentiment, said Investec chief economist Annabel Bishop. “At least 25% of GDP needs to be reinvested in the economy via fixed investment, particularly from government and utilities, not just the private sector,” she said. In turn economic growth will stimulate further fixed investment.
Treasury responded to the downgrades by indicating in a statement that reigniting confidence is a priority. “The commitment is on improving investor and consumer confidence through fast-tracking the implementation of the structural reforms on economic growth.”
The finance minister previously said that the recession is an indication of the lopsided structure of the South African economy. Gigaba was speaking at the Black Management Forum gala dinner on Friday when he explained that the institutional power to make investment decisions was concentrated in the hands of the elite few.
He went on to defend radical economic transformation, saying that it did not mean state corruption, or an irrational and unconstitutional disruption of the economy.
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