Nene: SA budget may not stave off downgrades

28 February 2018 | Economics

Alexander Winning and Wendell Roelf – South Africa's incoming Finance Minister Nhlanhla Nene said yesterday that the budget tabled by his predecessor last week might not prevent further credit ratings downgrades, casting doubt on hopes it would help reduce a large national debt pile.

The shoddy state of the government finances forced the Treasury last week to take the politically risky step of raising value-added tax.

The move was welcomed by ratings agencies and markets subsequently priced in expectations that it would enable South Africa to hang on to its last investment grade rating in a Moody's review due soon.

Nene, who served as finance minister from May 2014 until December 2015 before being sacked by Zuma, was asked during a radio interview whether the budget would stave off further downgrades that could make it more costly for South Africa to borrow.

"I wouldn't say that yet," Nene told Talk Radio 702.

Ratings

S&P and Fitch last year downgraded South Africa's credit ratings to sub-investment grade after Joseph Zuma fired Pravin Gordhan from his second stint as finance minister, a move that caused a major slump in confidence in Africa's most industrialised economy.

Nene's return to the finance ministry comes after Zuma was ordered to step down by his own African National Congress party and replaced by Cyril Ramaphosa almost two weeks ago.

Ramaphosa late on Monday announced Nene's return in a reshuffle that included the appointment of other new faces and the removal of some ministers allied to Zuma.

Nene, a soft-spoken technocrat who is respected by the markets, told 702 that he had learned of his reappointment on Monday and that his reaction was "mixed."

"What superseded my reaction was when public service calls, all other things are no longer a priority," he said.

‘Transitional’

Ramaphosa said his new cabinet was a transitional one to take country to next elections due mid-2019.

"It's a cabinet that takes into account the various strengths we've got in government," he told reporters in parliament yesterday, after Monday night's cabinet reshuffle.

When asked if he had to make compromises, Ramaphosa said: "No, no, no. This is a transitional cabinet that is going to take us to the next elections."

Pravin Gordhan was brought back to the cabinet in the key public enterprises department, which oversees around 300 state-owned firms, including loss-making South African Airways and cash-strapped power utility Eskom.

Market reaction yesterday to the cabinet shake-up was muted but there has been a strong rally since Ramaphosa was elected ANC president in December, with the rand gaining 14% since then, hitting three-year highs on Monday.

"The boost to the economic cluster by the appointment of Gordhan and Nene will be well received by financial markets and rating agencies," NKC African Economics said in a note yesterday. – Nampa/Reuters

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