S Africa faces threat of junk credit rat­ing

Kuwait Times - - BUSINESS -

South Africa’s po­lit­i­cal tur­moil and weak­en­ing econ­omy will come un­der the harsh spotlight of in­ter­na­tional credit rat­ings from this week amid pre­dic­tions the coun­try could lose its in­vest­mentlevel status. Moody’s will re­lease its up­dated grad­ing on Friday, be­fore Stan­dard & Poor is­sues its key an­nounce­ment a week later on De­cem­ber 2.

S&P cur­rently has South Africa-the con­ti­nent’s most de­vel­oped econ­omy-rated at the low­est in­vest­ment grade, and a down­grade would put the coun­try’s bonds into so-called “junk” status.

Moody’s cur­rently rates it one level higher than S&P. Any down­grade would trig­ger a fur­ther cri­sis of con­fi­dence among in­vestors who have be­come in­creas­ingly wary of South Africa’s eco­nomic prospects un­der Pres­i­dent Ja­cob Zuma. The coun­try has en­dured a year of po­lit­i­cal scan­dals and fall­ing eco­nomic growth, set against record unemployment and huge so­cial in­equal­ity more than two decades after the end of apartheid.

The out­come of the rat­ings re­views is un­cer­tain, but more than half of 12 econ­o­mists sur­veyed by Bloomberg said the S&P would down­grade South Africa to junk.

Peter Mon­talto, No­mura bank an­a­lyst, how­ever said S&P could freeze its rat­ing un­til next year, while Moody’s might cut it by one notch. “The agen­cies may want to see the out­come of the bud­get in Fe­bru­ary for specifics on rev­enue changes and also where growth is at the time,” he said.

“Many pol­icy mak­ers have been talk­ing up the chances of rat­ings stay­ing on hold in re­cent days.” A rat­ing down­grade could trig­ger a bout of bond sell­ing by for­eign in­vestors. Some in­vest­ment funds have rules that al­low them to only hold bonds that have in­vest­ment-grade rat­ings.

A down­grade would also likely fuel fierce crit­i­cism of Zuma’s lead­er­ship.

South Africa’s strug­gle to re­tain its in­vest­ment-grade status has been at the cen­tre of a po­lit­i­cal bat­tle in re­cent months. Fi­nance Min­is­ter Pravin Gord­han, who is widely feted by in­vestors, has ap­peared to have only a frag­ile hold on his job in a clash with Zuma.

Gord­han was due to ap­pear in court ear­lier this month on graft charges that many an­a­lysts saw as an at­tempt by Zuma loy­al­ists to oust him. The charges were dropped at the last minute, ex­pos­ing deep ten­sions in the rul­ing ANC party as sev­eral min­is­ters came out in his sup­port.

Gord­han was ap­pointed only last year to calm pan­icked in­vestors when Zuma sacked two fi­nance min­is­ters within four days. South Africa on Mon­day un­veiled the pro­posed fig­ure for its first min­i­mum wage — 3,500 zar ($242) a month-in a move that could im­prove labour re­la­tions.

Deputy Pres­i­dent Cyril Ramaphosa said the issue was raised in meet­ings with the Fitch rat­ing agency, which is also ex­pected to issue its latest credit grad­ing within two to three weeks.

“They wanted to know what progress we are mak­ing and they wanted to hear about the min­i­mum wage,” Ramaphosa said. “By and large we had a good a meet­ing.”

But South Africa’s dire eco­nomic sit­u­a­tion was un­der­lined on Tues­day with the re­lease of fig­ures show­ing the unemployment rate had risen to its high­est in 13 years, at 27.1 per­cent. —AFP

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