Johannesburg — NEWS that the budget deficit was set to be bigger than expected was no cause for concern as it reflected the effect of the economy's slow-down rather than a shift to more populist spending policies, analysts said yesterday.

An estimated official growth rate of 1,2% this year was described as "heroic" in the face of deepening global recession.

Two top rating agencies said there was no immediate threat to SA's sovereign credit rating.

Finance Minister Trevor Manuel had made it clear that the treasury was determined to maintain "sustainable finances" despite falling tax revenues and not "burden future generations" with excessive debt.

"That as a theme came up prominently and consistently," said Konrad Reuss, Standard & Poor's (S&P's) MD for SA and southern Africa. "Unless we see major policy shifts in the next two to three years, we will stay on hold with our BBB+ rating and its negative outlook."

Top-three global rating agencies Fitch, Moody's and S&P all have SA on a similar mid-investment grade credit rating. But Fitch and S&P put a negative outlook on their ratings for SA last year, while Moody's kept its positive.

The outlooks signal whether the next move is likely to be up or down in a sovereign credit rating, a factor foreign investors take into account.

Normally a big rise in state borrowing, such as was unveiled yesterday, would be seen as negative, with the government's main budget deficit set to widen to 3,9% of gross domestic product (GDP) this year.

That follows three years of modest surpluses and an estimated deficit of 1% of GDP in the 2008-09 fiscal year just ending.

"Everyone had been looking for a wider deficit, but they didn't expect it to be quite as wide as it was," said Razia Khan, Standard Chartered's regional research head for Africa.

"But it's not happening because of additional spending. It's due to a decline in revenue collection, which means it's happening for the right reasons and is temporary," she said.

Khan also said global markets should not take a negative view of the expected sharp slowdown in economic growth this year, from an estimated 3,1% last year.

"In the context of the global backdrop and contraction other economies are facing, a growth rate of 1,2% is almost heroic."

Official borrowing is set to rocket to R186bn in 2009-10, to keep an official infrastructure spending programme on track, and compensate for a slowdown in tax revenues.

But SA's debt still stands at a very respectable 26% of GDP, down from close to 50% a decade ago.

The treasury says it is confident that it will manage to borrow $3bn on foreign markets over the next three years despite the global credit crunch, and analysts appear to agree.

"SA's risk premium is still relatively low, its debt is low and well structured, it has room to spend," said Kristin Lindow, Moody's regional credit officer for Europe and Africa.

"The way the economy is moving, you won't have the hard landing nor are you going to see the kind of increase in government debt that other countries will experience."

Lindow hinted that there might be scope for Moody's to revise the outlook on its Baa1 rating for SA to neutral, but that should be put in the context of the global financial crisis. There was no case for changing the outlook to negative, she said.

Reuss said it was clear SA had not bowed to populist pressure ahead of the April 22 election as growth in spending was actually set to slow to 5,1% a year over the next three years, from an estimated 6,3% last year.

The big question on everyone's minds was whether prudent fiscal policy would remain in place after the general election, which is expected to see African National Congress (ANC) president Jacob Zuma become the country's leader.

Zuma is backed by the ANC's left-wing allies, trade federation Cosatu and the South African Communist Party, and the poll is seen as likely to precede the replacement of Manuel, who has been SA's finance minister since 1996.

When asked by reporters whether he thought fiscal policy would remain prudent under a new administration, Manuel replied that the budget was the product of "incredibly hard" teamwork of hundreds of men and women.

"All I can hope for is that the systems we've developed will stand up to scrutiny and counter any capricious behaviour," Manuel said.