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SA’s investment-grade status might stay intact for now after Finance Minister Pravin Gordhan vowed to move the economy onto a tighter fiscal path, analysts said, but ratings agencies will not hesitate to punish any hint of a slippage.

The rand was down 0.61% on Friday and government bonds were also on shaky ground after a heavy sell-off following Mr Gordhan’s budget on Wednesday, in which he cut this year’s economic growth forecast to the lowest since a 2009 recession.

But Mr Gordhan’s pledge to narrow the budget deficit to 2.4% of gross domestic product (GDP) by 2018-19 might placate agencies that had warned of downgrades, after President Jacob Zuma cast doubt on Pretoria’s fiscal policy by abruptly firing former finance minister Nhlanhla Nene in December.

"At first glance, it may buy SA time, maybe 12-18 months from ratings bureaus to give South Africa the benefit of the doubt," Lefika Securities economist Colen Garrow said. However, he warned that "the lack of growth continues to nudge the country’s credit rating down the ladder."

Mr Gordhan will certainly take heart from Standard & Poor’s (S&P), which said its BBB-rating on Africa’s most industrialised economy was not immediately affected by the budget, which was broadly consistent with its own base-case assumptions of planned fiscal consolidation.

"Nevertheless, we consider SA’s fiscal consolidation remains vulnerable to lower-than-expected GDP growth and shortfalls in revenues," S&P said.

Analysts said Mr Gordhan’s speech was somewhat short on ideas to jump-start the stalling economy, with growth now seen at 0.9% in 2016, down from the 1.7% predicted in October.

The economy is estimated to have grown 1.3% in 2015.

While partly blaming a slowdown in China and a crippling drought for the weak forecast, Mr Gordhan also acknowledged structural weaknesses on the domestic front that have been on the ratings agencies’ radars for some time.

"What was obvious was that Pravin Gordhan had no ability to announce wider microeconomic structural reforms that will boost growth in the medium run and bring back investor confidence," Nomura emerging-markets analyst Peter Attard Montalto said.

"As such, we still see after this budget SA on the path to subinvestment grade in the coming 18 months."

Moody’s, which has SA on Baa2, two notches above junk status, applauded the efforts to contain spending by cutting the large public-sector wage bill, but also criticised the budget’s lack of measures to boost revenue.

The GDP growth estimate, low as it was, might still be too optimistic, Moody’s said.

Fitch, which like S&P’s rates places SA at BBB-, said the budget marked a step towards restoring confidence in public finances following the turmoil of having three finance ministers in five days in December.

But implementing the budget containment measures would be "challenging", said Moody’s.

Reuters