Bloomberg News

Moody’s Sees ‘Deterioration’ in South Africa Fiscal Position

June 09, 2011

(Updates with rand in fifth paragraph and manufacturing in 10th.)

June 9 (Bloomberg) -- South Africa has had a “serious deterioration” in its fiscal position that is unlikely to reverse quickly, said Kristin Lindow, a sovereign credit analyst at Moody’s Investors Service.

Political risk in Africa’s biggest economy is also rising after the ruling African National Congress lost support in last month’s municipal elections, Lindow said in a speech in Johannesburg today.

South African Finance Minister Pravin Gordhan postponed plans to narrow the fiscal deficit in his budget speech in February, forecasting the shortfall would be unchanged at 5.3 percent of gross domestic product in the year through March 2012. In October’s mid-term budget, he predicted the deficit would narrow to 4.6 percent.

“After years of low deficit and fiscal surpluses, the situation has turned,” Lindow said. “There has been a very serious deterioration in the fiscal position now and for some time to come we don’t expect there to be a turnaround. There’s been a dramatic shift in policy stance from November to currently.”

The rand weakened to 6.7526 against the dollar as of 2:55 p.m. in Johannesburg today from 6.6919 before Lindow’s speech.

Jobs Growth

The government has stepped up spending on programs to create jobs for the one in four who are unemployed. President Jacob Zuma has pledged to create 5 million jobs in the next decade to slash the unemployment rate to 15 percent.

Unemployment is one of the biggest constraints on South Africa’s A3 credit rating, Lindow said. Rising debt levels don’t pose a threat to the rating yet, she said.

Economic growth will be higher this year than in 2010, though not “appreciably” so, Lindow said. Moody’s expects the economy to expand more than 3 percent this year and about 4 percent in 2012, she said.

Growth in manufacturing, which expanded an annualized 14.5 percent in the first quarter, is unlikely to be sustained and investment remains “weak,” Lindow said.

Manufacturing growth almost ground to a halt in April, slowing to an annual 0.4 percent from 4.9 percent in March, the statistics office said today.

The Reserve Bank, which has kept its benchmark interest rate unchanged at a 30-year low of 5.5 percent since November, may raise the rate later this year as inflation accelerates, Lindow said. The central bank expects the inflation rate, which reached 4.2 percent in April, to breach the 3 percent to 6 percent target range in the first quarter of next year.

--Editors: Gordon Bell, Philip Sanders

To contact the reporter on this story: Nasreen Seria in Johannesburg at nseria@bloomberg.net.

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.


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