South Africa's Rating Dependent On Fiscal Management

by Lorys Charalambous, Tax-News.com, Cyprus

21 December 2009

It has been said that the maintenance of South Africa’s country ratings will depend on its continued commitment to prudent fiscal management, and a consequent reduction in the increased budget deficit seen this year.

The South African government’s medium-term policy statement, issued in October, presaged a consolidated budget deficit of 7.6% of gross domestic product (GDP) in 2009-10, compared with only 1% of GDP in 2008-09.

However, at the same time, the government predicted that, as economic growth showed through in a recovery in household consumption and corporate profits over the next three years, tax revenues would also recover and there would be a consequent reduction in the deficit to 4.2% of GDP by 2012-13.

Standard & Poor’s (S&P), in an announcement confirming that South Africa remained with unchanged BBB+/A-2 foreign currency and A+/A-1 local currency country ratings, also left the ratings’ outlook at negative.

It said that, mainly due to further expected decreases in tax collections, it predicted that South Africa’s budget deficit in 2009-10 would, in fact, reach 8% of GDP.

The maintenance of the negative ratings outlook therefore reflected greater future economic risks as to whether the government would be successful in its deficit reduction target and, thereby, also restrict the rise in the country’s public debt.

S&P expects the ratio of debt to GDP to increase to 41% of GDP by 2012-13, but hopes that the ratio will remain below 50%, if the government is successful in its fiscal deficit management policies.

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