Finance Minister Malusi Gigaba on Wednesday expressed optimism just before he tabled his 2018 budget that South Africa would escape a further credit rating downgrade by Moody's in March.
"I believe we have done enough... taken tough measures," Gigaba told a media briefing.
He said the country's economic situation had shown slight improvements since he tabled the medium-term budget policy statement in October, including growth of almost R3 billion in revenue collection and he hoped a positive narrative had emerged that would "in the immediate term stave off another downgrade" and see a recovery of the sovereign rating in the medium term.
But the budget review cautioned that should Moody's move to downgrade the country to sub-investment status, this would slash the National Treasury's growth forecast for the current year by half.
The prospect is one of three scenarios listed by the finance ministry that would upset its baseline economic forecast, which includes GDP growth of 1.5 percent for 2018.
"In the first scenario Moody's downgrades local currency debt further.
"The risk premium - a measure of the extra return required by global buyers of South African bonds - increases by 100 basis points, or one percentage point, before returning to the baseline average in 2020. The impact on growth is largely reflected through higher borrowing costs, and lower investment and consumption.
It would see growth slow to 0.7 percent in 2018, 1.3 percent in 2019 and 2 percent in 2020.
Moody's in late November placed South Africa's long-term issuer and senior unsecured bond ratings on review for 90 days, a move widely seen as a temporary stay of execution.
The second scenario Treasury mentioned in its budget review speaks of a fiscal crisis and local currency downgrade triggered by risks in the state-owned sector materialising.
In this case, it cautioned, the cost of borrowing would increase by an average of 2.4 percentage points over the medium term.
GDP growth would then contract by 3.1 percent in 2018 and 0.3 percent in 2019, it said.
- African News Agency (ANA), Editing by Chantall Presence