State is sending out right signals, says S&P

The government is sending out the right signals despite a precarious fiscal tightrope, according to S&P Global Ratings.

Sovereign ratings director Ravi Bhatia said at the S&P global insurance conference in Rosebank on Tuesday that the government is “heading in the right direction but they have to walk this fiscal tightrope’’.

“We’ll need more detail on the stimulus plan and how investment plans will happen.

“It wasn’t a game changer but they’re sending out the right signals with the stimulus package and investment conference, and to a lesser extent the job conference as well,” he said.

Bhatia warned that two aspects could lead S&P to consider lowering the rating.

“We’re really watching the fiscal situation. If it was to deteriorate significantly, that would be of concern, or if economic growth performed even worse than it has,” he said.

Bhatia also expressed concern about the possibility of land expropriation without compensation.

“We’re slightly concerned about property rights and this whole issue around land.”

S&P’s forecasts are broadly in line with the Treasury’s. While growth is expected at 0.8% for this year, S&P expects a rebound next year of 1.8% and 2.3% by 2021.

“Things are so bleak that we consider 2.3% a rebound. That would have been seen as a recession in the early 2000s,” Bhatia said.

There is a lot of bad news in the medium-term budget policy statement, he said, including growth forecasts being revised down and the fiscal trajectory being revised up to above the 4% mark. It is clear “fiscal consolidation has been postponed”.

“That feeds into the debt stock, which we can see rising and getting close to 60%, and not towards stabilisation.”

In addition to this, the estimates on contingent liabilities are also higher.

However, the positives are that the growth trajectory in the outer years is unchanged, while the economic stimulus package is a positive and the Mining Charter finalisation is expected to reduce uncertainty.

S&P downgraded SA to junk status in 2017, in response to the surprise cabinet reshuffle and an unfavourable medium-term budget policy statement in October. SA went into investment grade in 2000/01 and climbed all the way up to BBB+.

However, the downward cycle began in 2012.

The credit ratings agency is scheduled to make its next decision on November 23.

Bhatia said the impact of the medium-term budget policy statement on SA’s outlook would be made clear only then.

This follows unfavourable statements from Fitch Ratings and Moody’s after the mediumterm budget policy statement last week, with Moody’s warning that it is credit negative. S&P rates SA’s foreign currency at BB and the local currency at BB+ with a stable outlook.