11 January 2013

South Africa: Nation Addressing Issues Raised in Fitch Review, Says Govt

Photo: Reserve Bank of South Africa
Mandela Rands (file photo)

Pretoria — National Treasury says government is consistently making efforts to address the concerns identified in Fitch's rating review, which is aimed at mitigating growth and socio-economic concerns.

South Africa's long term foreign currency credit rating has been downgraded by the Fitch Rating Agency (Fitch).

Fitch on Thursday downgraded South Africa's long term foreign currency credit rating to "BBB" from "BBB+", the long term local currency credit rating to "BBB+" from "A" and the short term credit rating to "F3" from "F2".

Fitch has placed the country on a stable credit outlook.

According to National Treasury, Fitch noted that South Africa's economic growth performance has deteriorated, which it said was likely to affect public finances and exacerbate social and political tensions.

Other reasons Fitch cited for the downgrade included a secular decline in competitiveness, which it said reflects wage settlements above productivity and infrastructure constraints, which it believes to have contributed to a widening current account deficit. The ratings agency said the country's public finances have deteriorated, and social and political tensions have increased.

"Fitch has indicated that the stable outlook is due to its belief that South Africa's credit strength will limit the speed, magnitude and the likelihood of a further potential downgrade over the typical two-year outlook horizon," said National Treasury.

It said some of the drivers of the downgrade have their roots in the protracted crisis in the Eurozone, South Africa's significant trading partner.

National Treasury said government was aware of the challenges of poverty and unemployment the country was facing.

"At its recent conference, the ruling African National Congress (ANC) endorsed the National Development Plan (NDP), which identifies the constraints to faster growth and presents a roadmap to a more inclusive economy that will address South Africa's socio-economic imbalances and challenges.

"The conference resolutions give certainty on economic policy, which the Fitch report does not seem to fully to appreciate. Government will prioritise the implementation of the NDP with the aim of achieving higher levels of growth."

It said the 2012 Medium Term Budget Policy Statement (MTBPS) published in October sets out a disciplined fiscal framework that keeps the expenditure envelope that was published in February unchanged.

"It balances support for the economy in the immediate term with fiscal consolidation over the medium to long term. It provides for a sustained investment in growth inducing infrastructure.

"The budget framework set out in the MTBPS demonstrates government's unambiguous commitment to maintaining debt and expenditure growth within sustained levels. These principles will continue to underpin South Africa's fiscal stance."

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