Finance Minister Nhlanhla Nene delivers his 2015 budget on February 25.  Picture: TREVOR SAMSON
Finance Minister Nhlanhla Nene delivers his 2015 budget on February 25. Picture: TREVOR SAMSON

FINANCE Minister Nhlanhla Nene has three months to prove to rating agencies the government will rein in the public sector wage bill, cut spending and raise taxes to avoid SA’s credit ratings being cut to junk status.

Standard & Poor’s (S&P’s) MD for Southern Africa Konrad Reuss on Monday welcomed last week’s budget but said implementation of the promises to cut spending was important.

Of the major three agencies, S&P and Fitch Ratings will next review SA in June, while Moody’s has not yet given a timeline.

"There was certainly reaffirmation with regards to the government’s commitment to fiscal consolidation, which is important to us because we have been concerned about SA’s debt dynamics for a long time," Mr Reuss said. "The spotlight is, of course, on implementation."

A downgrade from S&P would see SA’s rating fall to junk status, which would scare off investors. S&P downgraded SA’s rating to BBB-but changed the outlook to stable from negative in June last year. It affirmed this in December.

The government had "very little room to manoeuvre" when it came to spending, particularly in the "context of wage negotiations", Mr Reuss said.

Moody’s senior vice-president Kristin Lindow said its evaluation of the budget was "relatively favourable" but "the fiscal strategy is subject to a multitude of implementation risks to which policy makers will need to remain alert if the objectives are to be achieved".

These risks included salary raises to public servants above the 6.6% budgeted for; how the government addressed the financial condition of some state-owned enterprises; and the possibility of subdued growth due to power shortages. Moody’s rates SA Baa2, two notches above junk status, with a stable outlook.

Fitch said last week that weak economic growth and a failure to boost potential growth were "a negative rating trigger".

It is the only one to have a negative outlook on its rating of BBB. Such an outlook does not always mean the next rating will be a downgrade but it does highlight the high probability of that happening if the issues that led to the outlook are seen not to have been addressed.

Mr Nene said on Friday his budget had done everything to allay the concerns of rating agencies but also set out to do what was right for SA.

The government runs a large budget deficit, which it expects to narrow to 2.5% of gross domestic product (GDP) by 2017-18.

Personal income taxes were raised marginally while the fuel levy went up sharply.

Mr Nene revised down the economic growth forecast for this year to 2% from 2.5%. The outlook for next year was cut to 2.4% from 2.8%.

Value-added and corporate income taxes were not raised as the Davis Tax Committee report was awaited, he said.

The head of real-time research at ETM Analytics, Sean McCalgan, said the budget comprised a number of aspects, such as keeping the deficit in check, which was aimed at allaying the rating agencies.

But a worry was the way the government was looking to contain the deficit. "Government is not willing to significantly scale back on spending, but is rather putting the burden on the private sector by raising taxes," Mr McCalgan said.