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In a risky move, the National Treasury surprised the markets by abandoning its fiscal conservatism in the medium-term budget policy statement (MTBPS) last week. With the prospect of debt stabilisation receding, SA is back under ratings pressure. Theoretically, it makes sense in SA’s recessionary climate to shift away from the pro-cyclical policy of recent years (in which disappointing revenues prompted tax hikes) to a looser stance that prioritises growth over debt reduction. However, charting a path that allows the debt ratio to blow out from 55% to 60% of GDP over the next three years is a gamble that will pay off only if it doesn’t prompt more ratings downgrades and if growth recovers. Those are big "ifs". Unfortunately, the medium-term budget doesn’t prioritise growth, even after the decision to shift R50bn in spending towards township and rural economies and infrastructure. Most of it goes on a bloated public sector wage bill, education, health and social spending. Fitch Rating...

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