South Africa’s poor economic performance is the biggest impediment to stabilising its debt situation, said ratings agency Fitch in a company note.

Fitch’s comments came after Finance Minister Pravin Gordhan delivered South Africa’s 20th medium-term budget policy statement in Parliament on Wednesday, announcing reduced expenditure and new revenue raising measures in the next financial year.

In his speech, Gordhan revised GDP growth downwards to 0.5% for the year, while adjusting the deficit to GDP upwards – from 3.2% in February to 3.4% in the medium-term.

“The adjustment reflects slower than expected revenue growth as a result of weaker GDP growth and tax buoyancy, following disappointing tax data for the first five months of 2016/17,” Fitch said.

According to Gordhan, the tax collection shortfall for the current financial year is expected to be R23bn, it is planning additional tax increases of R13bn in 2017-18.

This amount is in addition to the R15bn mooted in the February budget, bringing total tax increases next year to R28bn. Another R15bn is on the cards for 2018-19.

Fitch said the fiscal adjustments announced by Gordhan in his medium-term budget policy statement will not contain the rise in gross loan debt. “The government expects this to peak at 53% in 2018/19  — two percentage points higher and a year later than forecast earlier in the February budget.”

Fitch opined that the structural reform measures that Gordhan highlighted in his speech on Wednesday, such as efforts to reduce legal uncertainty in the mining sector or improved visa processing, will not be sufficient to raise business confidence substantially in the near term.

The ratings agency did however acknowledge that South Africa managed to alleviate electricity shortages in the medium term.

If further noted that Gordhan’s intended tax hikes will come at a “sensitive time” against the backdrop of an ANC electoral conference where a new leadership will be chosen.

Positioning by potential candidates for the 2017 leadership conference, as well as concerns following the poor showing of the ANC in the local government elections in August this year, may make tax hikes unpopular and politically difficult, Fitch said.

South Africa’s sovereign credit rating will be reassessed in the next two months. Moody’s credit ratings review is scheduled to take place on 25 November, while Standard & Poor’s and Fitch’s decisions are expected in the first week of December.