Picture: REUTERS
Picture: REUTERS

LOWER economic growth is credit negative for SA as it will hamper efforts to raise tax revenues and broaden the tax base, rating agency Moody’s said on Thursday.

Credit negative implies that the country could be downgraded if economic growth as well as other areas of concern such as a large budget deficit do not improve. Downgrades raise the cost of borrowing.

The South African Reserve Bank has lowered its growth outlook for this year to 0.9% from 1.5%, while the World Bank revised its projection to 0.8% from 1.4%.

"Even though the National Treasury has budgeted conservatively for the current fiscal year and next ... the near-zero growth rate is a significant further downward shift in the already narrow tax base that buoyant tax elasticities cannot overcome," Moody’s senior-vice president Kristin Lindow said.

The Reserve Bank’s was the third downward revision to its 2016 economic growth forecast in as many meetings, Moody’s said, adding that lower growth was credit negative.

Moody’s rates SA at Baa2, which is two levels above speculative grade, or junk, but the outlook is negative, meaning a downgrade is possible if SA’s woes are not addressed.

Continued debt accumulation, reduced effectiveness of counter-cyclical fiscal policy and "abrupt and multiple" changes to the finance minister position in December had weakened government credibility, Ms Lindow said.