Signs point to new rat­ings down­grade

• Econ­o­mists warn that pol­icy and po­lit­i­cal un­cer­tainty could lead to a sovereign credit rat­ing cut in 2017 or 2018

Business Day - - FRONT PAGE - Su­nita Menon Eco­nomics Writer menons@busi­

The prob­a­bil­ity of an­other sovereign credit rat­ing down­grade was high as SA had been plagued by more pol­icy and po­lit­i­cal un­cer­tainty, econ­o­mists warned on Wednesday. This is com­pounded by un­cer­tainty about ANC lead­er­ship suc­ces­sion.

The prob­a­bil­ity of an­other sovereign credit rat­ing down­grade is high as SA has been plagued by more pol­icy and po­lit­i­cal un­cer­tainty, econ­o­mists warned on Wednesday.

This is com­pounded by the high level of un­cer­tainty sur­round­ing ANC suc­ces­sion.

The coun­try is pre­par­ing for the medium-term bud­get pol­icy state­ment, which is tak­ing place in less than two weeks, but the lead-up has been coloured by un­cer­tainty about SA’s pol­icy di­rec­tion, say econ­o­mists. Old Mu­tual econ­o­mist Johann Els, speak­ing at an Old Mu­tual dis­cus­sion about growth prospects in com­ing quar­ters, said: “We’re all feel­ing a sense of cri­sis and growth is on a down­ward tra­jec­tory.

“We’re in a pe­riod of pol­icy un­cer­tainty, which prob­a­bly means we’re going to be down­graded by the rat­ings agen­cies.”

Els said the coun­try needed at least 2% growth to en­sure that the gov­ern­ment did not fall into a debt trap.

SA had not ben­e­fited from im­proved global growth, de­spite hav­ing an open econ­omy, he said. “There is strength in this global re­cov­ery and we are not par­tic­i­pat­ing in that .... This is due to the im­pact of sig­nif­i­cant po­lit­i­cal and pol­icy un­cer­tainty on lo­cal con­sumer and busi­ness con­fi­dence [that has] in­hib­ited con­sumer spend­ing and busi­ness fixed in­vest­ment.”

Mar­kets would pay close at­ten­tion to any step taken by Fi­nance Min­is­ter Malusi Gi­gaba to keep the fis­cal sit­u­a­tion un­der con­trol, with a keen eye trained on the per­for­mance of sta­te­owned en­ti­ties.

While credit rat­ings agen­cies may hold on un­til 2018, BNP Paribas econ­o­mist Jeff Schultz said the mini bud­get would be Gi­gaba’s big­gest chal­lenge since he took of­fice in March.


“We ex­pect lower growth, in­fla­tion and rev­enue, along with di­min­ished in­sti­tu­tional ca­pac­ity and bur­den­some state-owned en­ter­prises, to lead to more de­lays to deficit con­sol­i­da­tion.

“Our tax rev­enue con­di­tions in­dex sug­gests the Trea­sury’s tax buoy­ancy as­sump­tions are too op­ti­mistic in light of the weak out­look for growth, wages and cor­po­rate prof­itabil­ity.” He said rat­ings agen­cies would pay close at­ten­tion to the out­come of the ANC’s De­cem­ber con­fer­ence, the lead-up to which has been un­pre­dictable.

“While the rev­enue slip­page will prob­a­bly not be enough on its own to trig­ger rat­ings ac­tions in Novem­ber, we think fur­ther rat­ings down­grades are in­evitable by mid-2018.”

In­vestec chief econ­o­mist Annabel Bishop said con­flict­ing po­lit­i­cal and eco­nomic pol­icy pro­pos­als had weighed down heav­ily on sen­ti­ment lev­els.

“With the coun­try now in a run-up to the national elec­tion in 2019, and the lead­ing party’s pres­i­den­tial elec­tion at the end of this year, lit­tle is ex­pected to change to ac­cel­er­ate GDP growth over this pe­riod, and so weak out­comes are fore­cast,” said Bishop.

SA’s re­main­ing key in­vest­ment grade rat­ings are on a neg­a­tive out­look on the last rung of in­vest­ment grade.

“Global risk and a do­mes­tic re­ces­sion would likely ex­ac­er­bate the credit rat­ings agen­cies’ con­cern over SA, re­sult­ing in down­grades,” she said.

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