Politics can trip up new govt growth plan - Fitch

Cape Town - A positive aspect of the SA government's recently announced Inclusive Growth Action Plan is that the new package adds firm deadlines for many of the measures, according to Fitch Ratings.

"Some of these deadlines are tight and not all may be met, but they add urgency to policy-making," the ratings agency said on Friday.

READ: BREAKING: Fitch downgrades SA to junk status

At the same time, it is of the opinion that the new plan is unlikely to significantly boost economic growth prospects. This is because most of the measures have been previously announced.

Fitch reduced its 2017 real GDP growth forecast for SA to 0.6% from 1.2% in its June Global Economic Outlook. It also lowered its 2018 forecast to 1.6% from 2.1%. The lower forecasts reflect weak first quarter results this year and that political uncertainty will continue to weigh on companies' willingness to invest, in its view.

Weaker trend GDP growth than ratings peers, partly due to a deteriorating investment climate, is a key weakness for South Africa's 'BB+'/Stable sovereign rating, which Fitch affirmed in June.


"Planned changes to the governance standards for state-owned enterprises (SOEs) would be important, but the main obstacle to improving SOE performance remains the implementation of governance standards in day-to-day operations," Fitch said in a statement.

SOE-related measures had been proposed by an inter-ministerial committee on reforming these companies. Fitch explained that SOE governance is relevant both to growth, as the sector is a large component of the economy, and the public finances, through guaranteed (7% of GDP) and non-guaranteed (10.5% of GDP) SOE debt.

"The fact that the measures have not already been approved points to how highly politicised they are and that their implementation cannot be taken for granted. In addition, a major reason for the weak performance of SOEs has been failure to implement existing rules," said Fitch.

"Clear evidence of improvements in the SOE governance framework and their strict implementation would help to contain the risks associated with contingent liabilities for the sovereign."

Minister of Finance Malusi Gigaba presented the Inclusive Growth Action Plan on July 13 as a reaction to the recession into which the SA economy has gone.

"Most initiatives focus on SOE governance, containing pressure on public finances, and boosting black economic empowerment and addressing inequality, which would only have an indirect impact on growth prospects," said Fitch.

"Many measures were already announced, for example in the nine-point plan in President Zuma's February 2015 State of the Nation address, or are part of regular processes, such as the commitment to a sustainable public sector wage deal."


The package announced a commitment to choose the cheapest plan for SA's electricity capacity development, which would seem to preclude nuclear power in the near term.

"However, government messages on the costly nuclear power plan have changed repeatedly and the issue is unlikely to be settled until after the electoral conference in December 2017 that will choose the new ANC head," said Fitch.

"The Treasury will explore an economic support package, according to the announcement. This would re-prioritise rather than raise overall planned expenditure but could raise the risk of over-spending if cuts to offset higher spending elsewhere don't materialise as planned."

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