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South Africa faces battle to rein in spending – Fitch

JOHANNESBURG (Reuters) – South Africa’s plans to rein in government spending will be hard to implement due to low economic growth, ratings agency Fitch said on Tuesday, adding the country had a poor track record of delivering debt and spending cuts.

Finance Minister Tito Mboweni said in an emergency budget in June that the government deficit would widen to 14.6% of gross domestic product in the 2020/21 fiscal year, while debt would jump to 81.8% of GDP.

However, the Treasury stuck with its promise of around 230 billion rand ($13.5 billion) of spending cuts in the short term, a target set in February before the COVID-19 pandemic.

This has been criticised by unions and some economists, who believe the government should ramp up spending to drag the economy out of recession.

“They have had previous plans to achieve a primary balance, which would have required smaller adjustments, and those have been abandoned. So the track record of following up on such plans isn’t really there,” said Fitch’s head of Africa sovereign ratings Jan Friederich during a webinar.

Fitch downgraded South Africa’s credit rating deeper into “junk” territory in April, citing the lack of a clear path towards debt stabilisation and higher economic growth. The other top ratings firms, Moody’s and S&P, also rate the country at sub-investment grades.

Africa’s most advanced economy contracted for the fourth time in five quarters in the three months to March, before the pandemic. The Treasury estimates GDP will shrink 7.2% this year.

($1 = 17.0698 rand)

(Reporting by Mfuneko Toyana; Editing by Emma Rumney and Mark Potter)

The Fitch Ratings logo is seen at their offices at Canary Wharf financial district in London

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