Fitch: Nene's Exit Raises South Africa Fiscal Policy Questions
President Jacob Zuma said on Wednesday that David van Rooyen will replace Nene, who had been Minister of Finance since May 2014. No reason was given for the change, although the president said that Nene would fill "another strategic position."
The surprise announcement, coupled with the lack of clarity on why Nene was replaced or the preferred policies of his relatively inexperienced successor, inevitably raises questions about the motivation for the change in personnel and the implications for economic policy.
Van Rooyen is a member of parliament, has served as a whip of the parliamentary committee on finance, has held various ANC leadership positions and has an MSc in finance, but is less experienced in policy-making than Nene, who had built up a reputation for fiscal conservatism in difficult economic times.
The change would be relevant to our sovereign rating assessment if it led to a loosening of fiscal policy, such as an upward revision to the government's nominal expenditure ceilings, and a faster increase in government indebtedness. We identified looser fiscal policy that resulted in a failure to stabilise the ratio of government debt/GDP as a rating sensitivity when we downgraded South Africa to 'BBB-'/Stable last week.
It would also be relevant if it led to a weakening in transparency and financial management in state-owned companies, which represent a contingent liability to the sovereign. Nene had opposed procurement plans by South African Airways, and there has been speculation in the press that he was cautious on proposed plans for a nuclear power building programme. The government has contingent liabilities equivalent to 11.5% of GDP, mainly in the form of potential guarantees to SOEs, of which issued guarantees are around 5.5% of GDP.
The main driver of our downgrade was further weakening in GDP growth performance and potential. This has pushed up gross general government debt to GDP, which will increase to 51% at end 2015/2016, nearly double the level of 2008/2009.
Weaker growth has made it difficult to reduce the budget deficit and stabilise debt/GDP, but the South African Treasury has stuck to its nominal non-interest expenditure ceiling since 2012. This commitment to abide by spending ceilings set several years in advance has provided an important anchor for fiscal policy.
We discussed the outlook for sub-Saharan Africa at a series of events in Europe this week, concluding in London this morning. Details and presentations are available at www.fitchratings.com.