SA at risk of junk sta­tus

Lesotho Times - - Business -

JO­HAN­NES­BURG — There is a medium to high prob­a­bil­ity that South Africa’s debt will be down­graded to non-in­vest­ment sta­tus, ac­cord­ing to the coun­try’s cen­tral bank.

A cut may lead to cap­i­tal out­flows, af­fect gov­ern­ment’s rand-de­nom­i­nated debt, in­crease the cost of fund­ing and re­duce credit to the pri­vate sec­tor, the Pre­to­ria-based South African Re­serve Bank said in its Fi­nan­cial Sta­bil­ity Re­view on Tues­day. Spreads on credit-de­fault swaps would also widen, cor­po­rate prof­its de­cline and house­hold debt lev­els would in­crease along with fi­nanc­ing costs, the cen­tral bank said.

South Africa risks los­ing its in­vest­ment-grade sta­tus with S&P Global Rat­ings due to re­view its BBB — as­sess­ment, which is one level above junk, in June. Moody’s In­vestors Ser­vice put its as­sess­ment, which is one step higher, on re­view for a down­grade in March. Fi­nance Min­is­ter Pravin Gord­han met with rat­ing com­pa­nies dur­ing the In­ter­na­tional Mon­e­tary Fund spring meet­ings in Wash­ing­ton last month.

“You don’t pre­vent a down­grade just by talk­ing to rat­ings agen­cies,” Gov­er­nor Le­setja Kganyago said af­ter the re­lease of the re­port. “A down­grade is pre­vented by im­prov­ing your credit met­rics.”

Gord­han pro­jected in his Fe­bru­ary bud­get the fis­cal short­fall will nar­row to 2.4 per­cent of gross do­mes­tic prod­uct in three years from a pro­jected 3.9 per­cent this year. Gross debt will rise to more than 50 per­cent of gross do­mes­tic prod­uct for the first time in at least 25 years, ac­cord­ing to the Bud­get Re­view.

“Fis­cal con­sol­i­da­tion will ar­rest any de­te­ri­o­ra­tion in our debt met­rics,” Kganyago said. South Africa’s abil­ity to ser­vice do­mes­tic debt is “much stronger than we are com­mu­ni­cat­ing or give our­selves credit for.”

The rand weak­ened 2.2 per­cent to 14.5874 per dol­lar as of 7.48pm in Jo­han­nes­burg. Yields on rand-de­nom­i­nated gov­ern­ment ment bonds due De­cem­ber 2026 rose 14 ba­sis points to 9.12 per­cent.

De­spite the risk of a credit-rat­ingdit-rat­ing down­grade, South Africa’s big­gest banks nks have un­der­gone com­mon sce­nario stress tests ests and could with­stand sig­nif­i­cant credit losses,sses, ac­cord­ing to the cen­tral bank.

Other risks for the coun­try’sntry’s largest banks, which in­clude Stan­dard Bank Group and Firstrand, in­clude “spillovers s from ex­ces­sive volatil­ity and risk aver­sion in global fi­nan­cial markets” and con­tin­ued low eco­nomic co­nomic growth in South Africa, the cen­trall bank said.

“De­spite some se­ri­ous s head­winds, the fi­nan­cial sys­temtem is as­sessed as re­main­ing ro­bust, obust, char­ac­terised by well-cap­i­tal­talised, liq­uid and prof­itable le fi­nan­cial in­sti­tu­tions.” — Bloomberg

Sa re­serve Bank gov­er­nor Le­setja Kganyago.

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