South Africa ratings not immediately affected by announced 2016 Budget

Standard & Poor's Ratings Services said today that its ratings on the Republic of South Africa (foreign currency BBB+/Negative/A-2; local currency BBB-/Stable/A-2; South Africa national scale zaAAA/--/zaA-1) are not immediately affected by the National Treasury's 2016 budget, which it presented on Feb. 24, 2016.

The treasury's budget projections are broadly consistent with our base-case assumptions of planned fiscal consolidation, albeit against a sharp downward revision of GDP growth in 2016. However, we note that the budget's ambitious fiscal consolidation targets for 2017-2018 and 2018-2019 aim to reduce fiscal deficits at a faster pace than the treasury previously anticipated.

Nevertheless, we consider South Africa's fiscal consolidation remains vulnerable to lower-than-expected GDP growth and shortfalls in revenues. We also consider that the fiscal trajectory continues to be exposed to contingent liabilities emanating from state-owned entities with weak balance sheets, which may require more support than what the government has currently provided. Debt-servicing costs are vulnerable to the domestic interest rate environment and to a lesser extent to exchange rate weakness.

In addition, GDP growth rates are still subdued, and will likely remain so in the medium term, posing a threat to consolidation plans. The announced budget lacks significant policy announcements that we think would immediately spur GDP growth, or provide much-needed business confidence to the private sector. Efforts in this regard continue to remain limited, particularly in labor relations, where strikes have in the past inhibited higher GDP growth and have the potential to do so this year again in the mining sector.

We have determined, based solely on the developments described herein, that no rating actions are currently warranted. Only a rating committee may determine a rating action and, as these developments were not viewed as material to the ratings, neither they nor this report were reviewed by a rating committee.