The replacement of a second Finance Minister in South Africa within five days has not enhanced confidence in government effectiveness and leaves questions over the direction of economic policy, Fitch Ratings cautioned in a statement on Tuesday.
In this context, the agency held that February’s budget would be an important event in assessing the government’s commitment to prudent management of the public finances.
Finance Minister Pravin Gordhan on Monday described government’s expenditure ceiling as “sacrosanct”, adding government would “unreservedly continue our fiscal consolidation process and we will stabilise our debt in the medium term”.
Fitch viewed the nominal noninterest ceiling, which the government had met since 2012, as an important pillar of fiscal discipline.
“The market reaction to the [surprise appointment of David van Rooyen] and President Jacob Zuma’s subsequent [change of heart] may strengthen the hand of Gordhan and those in the cabinet arguing for prudent fiscal policy, at least in the near-term.
“However, the appointment of van Rooyen in place of Nene raises questions over Zuma’s motivation and what it reveals about his economic policy preferences,” Fitch noted.
Clarity over government policy regarding the proposed nuclear power building programme and procurement plans by South Africa Airways would also be instructive after this week’s events.
Looser fiscal policy, resulting in a failure to stabilise the ratio of government debt to GDP was a rating sensitivity when Fitch downgraded South African to ‘BBB-‘ Stable on December 4.
