Cape Town – Treasury is confident that its mini budget statement will hold off any threat of a ratings downgrade, even after the rand weakened 2% against the dollar on Wednesday.
On Thursday the rand was even more on the back foot, trading at R13.58/$ after Finance Minister Nhlanhla Nene's medium-term budget pointed at lower economic growth and lower revenue. Nene reiterated throughout his budget speech that without economic growth, revenue cannot increase and without revenue growth, expenditure cannot increase.
The rand was trading at R13.27/$ before the mini budget was tabled in Parliament on Wednesday.
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While protesting students turned Cape Town’s parliament precinct into a cacophony of chants demanding affordable tertiary education on Wednesday, Deputy Finance Minister Mcebisi Jonas sat confidently in his office, measured in his outlook for the country’s economy.
“The fiscal framework in the mini budget is consistent with what is being said all over the world,” he told Fin24. “The threat of a ratings downgrade is very low.”
Jonas said the many conversations Treasury has had with stakeholders and analysts back this belief.
Ratings agencies have tipped South Africa on the verge of junk status, a move that would have negative implications for investor confidence, but there is no sign that it would happen this year.
Jonas warned that Treasury cannot solve the rating downgrade threat through fiscal policy alone.
“You do need other measures across the board,” he said. “In South Africa, electricity supply must be made more consistent. We must actually broaden our capacity in that regard.
“We must ensure that there is greater coordination in government around policy and (ensure that) policies talk to each other,” said Jonas. “We must ensure that state institutions function very well so that they have impact on development. We must enhance training and skills development, aligning it with the economy.”
Finance Minister Nhlanhla Nene, who tabled the mini budget statement in parliament on Wednesday, believed the consistency of his tight grip on spending would benefit the country’s ratings outlook.
“We are in a position of stabilising our debt, which is one of our risks, and staying the course on fiscal consolidation,” he told media ahead of his dramatic day in parliament. “There is no reason for a downgrade, but I can’t speak on behalf of ratings agencies.
“It would be unfair for anybody to think that government is not taking the matter seriously of addressing the challenges brought about by the economic environment at home and globally,” Nene told Bloomberg after his mini budget speech.
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