Higher economic growth still a priority, despite rating

Monday, October 10, 2011

Pretoria - The South African government will continue to prioritise higher economic growth and job creation at the core of its economic policy, National Treasury said.

On Wednesday, Moody's Investor Services revised the country's A3 rating outlook from stable to negative. The rating agency cited slower economic growth than what was previously expected as well a growing political risk to low budget deficits.

In its response, Treasury said South Africa's fiscal framework was supportive of the economy over the medium term. Last month, the Medium Term Policy Statement (MTBPS) reaffirmed the country's recovery and reform at a time of uncertainty.

Treasury said the fiscal position would be reinforced over the medium term.

"The South African government will continue to prioritise higher economic growth and job creation at the core of its economic policy, within a transparent investment and sustainable fiscal framework."

Moody's lowering its outlook will mean that the next step it takes in its A3 investment grade rating for the country could be downwards. This would raise the country's cost of borrowing.

Before the revision, the outlook on South Africa's rating had been stable since July 2009, with the rating agency acknowledging the country's effective economic stewardship.

"We are disappointed that even in spite of this acknowledgement, they have changed the outlook on our rating from stable to negative," said Treasury.

Government also expressed disappointment with Moody's assessment of political risk in the country, noting that Moody's decision came after the tabling of the MTBPS.

"The MTBPS is a political decision on the prospects in our economy and the fiscal policy choices that government has made with explicit support of the ruling party, the African National Congress. Political debate and a vigorous exchange of policy options must be expected in a democracy.

"This cannot be construed as political instability or 'the political leadership's unwillingness to definitively reject demands from certain segments of the political spectrum'," noted National Treasury.

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