Mixed reaction to budget from rating agencies

By Mariam Isa

Credit rating agencies gave a very mixed reaction to the Treasury's budget for this year on Wednesday‚ with responses ranging from positive to neutral to negative.

The comments from Fitch Ratings‚ Moody's Investors Service and Standard & Poor's reflect the differences in the assessments which they made when they downgraded SA over the past five months.

Moody's Vice-President Kristin Lindow said that the budget appeared to be "credit-positive" given the Treasury's commitment to curb spending in the face of flagging tax revenues and stick to its stated goal of significantly reducing the fiscal deficit.

Finance Minister Pravin Gordhan said that real spending‚ which takes account of inflation‚ would increase by just 2.3% over each of the coming three years‚ down from the 2.9% growth which the Treasury had flagged in October.

"The reduction in spending and staying within their ceiling is very important in terms of signaling the priority of keeping down the deficits and debt‚" Ms. Lindow said.

"If a deficit comes about because of a shortfall of revenue outside their control the question is how do they handle the situation -- its sounds as if they are operating prudently and realistically in the circumstances."

SA's budget deficit widened sharply to 5.2% of gross domestic product (GDP) in fiscal 2012-13 from 3.9% the previous year and an earlier forecast of 4.8%. Revenues fell R16.3 billion short of expectations as growth in the economy slowed.

The Treasury said the shortfalls will be bigger than anticipated in the coming two years‚ but would shrink to the key 3.1% level by 2015-16‚ as predicted in its October medium-term policy statement.

Fitch Director Carmen Altenkirch said that the budget highlighted the threat posed by weaker than expected economic growth and underperforming revenue colletion to fiscal consolidation over the next three years.

"It was encouraging that the government has slowed down the pace of spending in order to reflect the reality of weaker revenue growth‚" she said.

"However it is still concerning that debt continues to creep up and the effort it will take to bring the budget deficit back to 3.1% and contain the growth in debt will become more difficult."

Overall the budget was credit-neutral‚ she said.

Standard & Poor's MD for SA and Southern Africa Konrad Reuss said that last year's budget outcome was disappointing and a "good reminder of the fact that the risks are really stacked to the downside" in terms of the country's fiscal performance.

If the global economy did not perform as well as expected SA's growth and tax revenues would also suffer‚ putting the country in the same situation as last year‚ which would "more urgently demand spending cuts‚" he said.

"That is why we kept a negative outlook on the rating‚" he said.

Both S&P and Fitch have given SA a BBB rating‚ but Fitch has a stable outlook on its asssessment. Moody's has given SA a Baa1 rating -- a notch above the other two‚ but with a negative outlook.