NewsSouthern AfricaSouth Africa needs growth to avoid downgrades, finance minister says


Posted on Tuesday, 12 July 2016 13:41

South Africa needs growth to avoid downgrades, finance minister says

South Africa's Finance Minister, Pravin Gordhan, arrives at the South African Parliament to deliver the annual Budget speech in Cape Town. Photo: Schalk van Zuydam/AP/SIPASouth Africa needs to deliver concrete results on economic growth in the next few months to avoid credit rating downgrades, the finance minister said on Tuesday, promising to implement the current fiscal plan to achieve this goal.

Africa's most industrialised country dodged cuts to its investment-grade rating by Moody's, Fitch and S&P this year but could still slip into "junk" status in the next reviews due by December if the economic outlook deteriorates.

"In the next few months we have to collectively deliver another set of concrete results that would persuade the rating agencies that what we said in the first six months of this year is in fact being delivered in the second half of this year," Pravin Gordhan said at a meeting with business leaders.

"Of course growth is not something you can click your fingers and deliver but investors and rating agencies want to see we are doing enough."

Gordhan, who was finance minister previously in 2009-14, was recalled to the post in December to restore battered investor confidence after President Jacob Zuma changed finance ministers twice in less than a week, triggering a sell-off that weakened the rand, bonds and shares.

The South African economy, beset by high inflation and unemployment, has also been hobbled by low commodity prices and a severe drought.

The International Monetary Fund last week cut its 2016 GDP growth forecast for South Africa to just 0.1% from the 0.6% it had last predicted in May.

The Treasury has a more optimistic forecast of 0.9%, while the central bank sees a 0.6% expansion.

"In February this year we gave certain commitments in terms of the fiscal trajectory that we will follow, and we will as much as is possible within a tough environment still stick to the commitments that we have made," Gordhan said.

"If growth doesn't come through, we will have to make tough decisions in terms of expenditure."

In his 2016/17 budget speech in February, Gordhan announced a package of spending cuts, civil service job freezes and moderate tax hikes on property sales, fuel, alcohol and capital gains to aid economic growth.

Stronger-than-expected manufacturing output for May provided some level of optimism to policymakers in the ailing economy.

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