PRETORIA, November 26 (ANA) – Efforts made by South Africa to keep the country’s investment grade have paid off, the National Treasury said on Saturday.
Government, business, civil society, labour, and politicians continued to work hard to build a foundation for faster growth, it said in a statement.
This follows the announcement by Fitch Ratings affirming South Africa’s long-term foreign and local currency issuer default ratings at BBB and a revised outlook from stable to negative, and Moody’s Investor Service’s decision to keep the sovereign ratings unchanged at Baa2 with a negative outlook.
“Currently the economy of South Africa is not doing well,” the National Treasury said in a statement.
“Economic growth has been declining despite attempts to reduce structural constraints. Many companies are not hiring; while others are expanding their businesses outside South Africa; the drought the country experienced last year did not help growth; and the labour market rigidities continue to constrain employment growth. The recent political noise has resulted in the weakening of the rand exchange rate and increasing government yields; the former translated to higher prices of goods and services,” it said.
Government was hard at work boosting economic growth by working together with business, civil society, and labour to demonstrate its commitment to translate plans into concrete actions that would ensure South Africa remained an investment grade country.
“Government has, however, accumulated a lot of debt in the past several years in an attempt to sustain the country through hard times created by the collapse of the US banks in 2008.
“Currently government spends close to R150 billion in interest costs – a budget that is almost the same as for social grants and health – with debt of over R2 trillion. If the cost of borrowing money for government increases, it means that government will have to either cut social spending or tax the few people that are working even more, which is bad for the country.
“However, such positive news may offset the increasing cost of borrowing, thereby enable government to continue with its spending plans. The ratings outcomes mean that South Africa as a country is given some time to fast-track growth enhancing strategies to minimise the costs associated with negative sentiments.”
For the poor, this outcome meant that low-skilled work may be preserved for now since companies may postpone closing doors and moving businesses outside the country. The impact of the increasing cost of goods and services may be partially offset by the preserved disposable income following positive sentiments.
For the middle-class and wealthy households, positive sentiments may translate into manageable debt costs, preserved value of their assets, such as retirement contributions, property, and other types of savings, and no loss of disposable income.
For business, positive sentiments were likely to result in investment and sustain the current employment levels. The borrowing costs and input costs were likely to remain relatively the same, reducing the need to either pass through the costs to consumers or reduce employment.
On the one hand, government now needed to ensure that:
-The spending ceiling was adhered to – The medium-term budget policy statement (MTBPS) proposed R26 billion in reductions to the spending ceiling over the next two years;
– Tax revenue measures were implemented – Proposed tax measures amounted to R43 billion over the next two years (proposed in the 2016 budget and the MTBPS);
– The proposed budget on infrastructure to boost economic growth should be spent efficiently – Government had budgeted R987.4 billion for infrastructure over the medium-term expenditure framework (MTEF) period, with large investments continuing in energy, transport, and telecommunications;
– Spending pressures were accommodated within the current baseline and did not result in a breach of the spending ceiling;
– The quality of spending was improved, efficient and goes a long way – In an environment of slow economic growth and limited resources, government was committed to reducing waste so that spending produced the intended results through procurement reforms. Over the next three years, the legal and regulatory framework would be strengthened to improve the relationship between spending and outcomes;
– The costs were monitored and controlled – The cost-containment measures introduced in December 2013 were issued to guide spending on consultants, travel, catering, entertainment, and venue hire. These measures, linked with procurement reforms and budget reductions introduced during the same period had succeeded in curtailing spending on non-essential goods and services. In real terms, spending on these items had fallen by 7.7 percent. This included a 12.6 percent real decline in spending on consultants since 2012/13; and
– Reforms relating to state-owned companies, labour markets, improving policy certainty, and economic growth were fast-tracked.
On the other hand, business had to ensure that:
– The SMME investment fund of about R1.4 billion was available to provide small businesses with access to finance and mentorship;
– It continued to support government and labour in public platforms such as investor roadshows and in prioritising finding solutions to address constraints in sectors with high employment and export potential; and
– The framework for private participation in public infrastructure spending was finalised.
“All these to be successful will require a united effort towards concrete delivery in these priorities which will lay a solid foundation for all South Africans to break through the cycle of poverty, inequality, and unemployment in a sustainable manner,” the National Treasury said.
– African News Agency (ANA)
