Gigaba's Budget must inspire investor confidence, avoid downgrade - economist

Treasury is expected to spell out tough decisions to plug a revenue gap and narrow the country's budget deficit.

FILE: Finance Minister Malusi Gigaba delivers his maiden Medium Term Budget Policy Statement on 25 October 2017. Picture: GCIS

CAPE TOWN - One of the biggest economic risks facing South Africa are further credit ratings downgrades.

That's according to economist Thabi Leoka, speaking ahead of Finance Minister Malusi Gigaba's 2018 Budget Speech in Parliament on Wednesday.

Treasury is expected to spell out tough decisions to plug a revenue gap and narrow the country's budget deficit.

Leoka says that Moody's is the only credit ratings agency that rates South Africa above sub-investment grade.

“If they do downgrade us, it means investors who are mandated to invest in countries that are investment grade will have to pull out their money.”

Leoka says in order for the minister and Treasury to prevent this, they need to target the budget deficit and possibly reduce it by about 3% in the next two years.

“It’s going to be a very difficult budget. With the past budget, economists used terms like ‘walking a tightrope’ or being ‘between a rock and a hard place’. I think we will continue to hear these terms.”

After Ramaphosa’s election last week, ratings agencies said they continue to monitor policy decisions taken by the country's new leadership in restoring economic growth.

Moody’s says it's closely monitoring developments in South Africa.

The ratings agency is scheduled to review the country’s credit rating next month.

(Edited by Shimoney Regter)