Goldman Sachs believes South Africa is unlikely to suffer the large revenue shortfall projected by its finance minister and that the nation’s path for fiscal consolidation remains credible.

Finance Minister Enoch Godongwana painted a bleaker-than-expected picture when he delivered a medium-term budget update last week with a slightly wider deficit. Despite this caution, South Africa remains on track to stabilise debt and bring if below 70% of gross domestic product by the end of the decade, Goldman economist Andrew Matheny said.

“We would be surprised if you get the magnitude of revenue shortfall that they’re pointing to,” Matheny said. “We are more optimistic. If anything, we think they’re probably being overly conservative here.”

Economists had expected a revenue shortfall of around R12-billion. Instead, Godongwana announced a R22-billion gap, widening the deficit to 5% of GDP from 4.5% projected in February.

Goldman had seen scope for a possible improvement on South Africa’s sub-investment-grade credit ratings within six months. While it may not happen that soon, a positive outlook remains on the cards, Matheny said.

Fitch Ratings and Moody’s Ratings may review South Africa’s assessment following the release of the budget update, while S&P Global Ratings’ assessment is due from November 15. All three companies have a sub-investment grade rating on South Africa with a stable outlook.

“You don’t narrow that deficit as quickly but this is still a stabilising debt path versus market consensus and also ratings agency expectations for a more adverse path,” he said, adding that Fitch and S&P, which both rate South Africa BB-minus, are “a little bit behind the curve in terms of calling a bit of a turn in the credit cycle.”