International ratings agency Moody’s has maintained its negative outlook for the South African banking system, saying that projected sluggish GDP growth and an “unpredictable domestic political context” would weaken banks’ loan quality and profitability.
Moody’s released a new 22-page report – “Banking System Outlook – South Africa” – on Monday. It said weak operating conditions were driving its negative outlook.
Moody’s analyst and co-author of the report Nondas Nicolaides said in a statement that SA GDP growth was expected to remain low for the remainder of 2017.
He said Moody’s expects subdued GDP growth and rising competition to curb banks’ pricing power this year, particularly in the corporate segment, driving down revenue growth. (Fin24)
JOHANNESBURG – REUTERS
South Africa is in danger of missing its 1.3-percent growth target in 2017 due to poor performance of major sectors of the economy that will likely restrain tax revenues, Finance Minister Malusi Gigaba said on Monday.
Africa’s most industrialised economy aims to collect just under 1.3 trillion rand ($98 billion) in taxes during the 2017/18 fiscal year that ends in March, versus the 1.14 trillion rand a year earlier.
“Our current level of growth is simply insufficient and not enough … We cannot be complacent about the 2.5 percent second quarter growth that got us out of technical recession,” Gigaba told a tax conference.
That 2.5-percent expansion in the three months to the end of June followed contractions of 0.6 percent in the first quarter and 0.3 percent in the final quarter of 2016.
With growth and revenues expected to underperform and analysts predicting a budget shortfall of as much as 50 billion rand, the deficit is unlikely to come down, raising the risk of credit downgrades deeper into junk territory.
Tax Commissioner Tom Moyane, speaking at the same event, also warned that the revenue service collection target would be difficult to achieve in current conditions.
“The 2.5-percent growth does not provide us with a glimmer of hope … the 1.265-trillion target for this year will be a stretch. It will be difficult in these sluggish economic conditions,” Moyane said.
In February former Finance Minister Pravin Gordhan announced increases in taxes for top income brackets in a bid to reduce the budget deficit to 2.6 percent of national output by 2019/20 from the current 3.4 percent.
All three major ratings firms cut the country’s credit after President Jacob Zuma fired Gordhan as finance boss in March, and have warned that a combination of policy and political uncertainty and low growth could trigger further cuts.
Gigaba says drastic measures on the structure of the economy are
needed to achieve sustainable growth.