By: Given Jama

The South African Treasury said that the government is mindful of the country’s growth challenges and will prioritise the acceleration of the National Development Plan (NDP) to address them.

This followed South Africa’s outlook downgrading by rating agency Fitch Rating from stable to negative at ‘BBB’. The agency cited that the growth outlook has deteriorated and will subsequently make reducing the budget deficit challenging.

“Fitch’s concerns about growth arise partly from the strike that has affected part of the mining sector. Efforts to bring an end to the strike continue and government has called on all parties to seek an end to the deadlock,” the treasury said in a statement.

Fitch said that the deterioration of the outlook with the Real Growth Domestic Product (GDP) decreasing by 0,6% in the first quarter reducing the year-over-year rate to 1,6% reflects the long strike in the platinum sector. It said the manufacturing output has fallen sharply.

“Increased strike activity, high wage demands and electricity constraints represent negative supply side shocks. So far, the sharp depreciation of the rand over the past two years has not fed through to clear signs of improvement in competitiveness and growth,” said the ratings agency in its statement.

Fitch has also revised down its forecast for GDP growth to 1.7% in 2014 from 2.8% from its December 2013 review. It also put it at 3% in 2015, a decline of 0.5%.

Fitch said that the new ANC government faces a challenging task to raise the country’s growth rate and improve social conditions. However it says that the deteriorating trends in governance, corruption and weaker growth performance have made the government’s task more difficult.

In Fitch’s opinion, “This will require an acceleration of structural reforms, such as those set out in the comprehensive National Development Plan (NDP).”

Fitch said that the growing budget deficit is leading to rising public indebtedness.

“Fitch expects moderate slippage in the consolidated government deficit to 4.2% in 2014/15 from 4% in 2013/14 owing to the growth shock and platinum strike. Reducing the deficit to below 3% of GDP by 2016/17 will be challenging and dependent on a recovery in growth and adherence to tough expenditure ceilings,” said the agency.

The treasury said that the government remains resolute in its fiscal sustainability and keeping its debts at manageable levels.
“While short term cyclical factors might cause marginal deviations from targets, we will not deviate from the long term trajectory. All necessary adjustments will be made to achieve the fiscal path.”