Rand firms as S&P af­firms SA’s credit rat­ing

CityPress - - Business And Tenders - JUSTIN BROWN busi­ness@city­press.co.za

On Fri­day, the rand firmed to its best level since the mid­dle of last month af­ter S&P Global Rat­ings be­came the sec­ond ma­jor rat­ings agency to af­firm its view of South Africa’s cred­it­wor­thi­ness at in­vest­ment grade.

S&P Global kept its rat­ing at BBB, which is one notch above “junk” sta­tus, but it main­tained a neg­a­tive out­look on the rat­ing due to South Africa’s weak growth – the lo­cal econ­omy is ex­pected to ex­pand by less than 1% this year, with S&P fore­cast­ing growth of 0.6%.

Last month, Moody’s In­vestors Ser­vice af­firmed its rat­ing of South Africa at Baa2, which is two notches above in­vest­ment grade, with a neg­a­tive out­look.

The third ma­jor rat­ings agency, Fitch Rat­ings, is ex­pected to re­lease its lat­est re­view of South Africa soon.

The de­ci­sion by S&P, which was re­leased at 5.36pm on Fri­day, caused the rand to firm to R15.09 against the dol­lar. This is com­pared with R15.30 an hour be­fore S&P’s de­ci­sion was re­leased.

The agency warned that low growth was putting South Africa’s eco­nomic met­rics at risk and could even­tu­ally weaken the gov­ern­ment’s so­cial con­tract with busi­ness and labour.

The neg­a­tive out­look also sig­nalled that S&P could lower its rat­ing of South Africa this year or next year if pol­icy mea­sures did not turn the econ­omy around.

“We could lower the rat­ings if gross do­mes­tic prod­uct [GDP] growth does not im­prove in line with our cur­rent ex­pec­ta­tions, or wealth lev­els con­tinue to de­cline in US dol­lar terms,” S&P said.

“Ris­ing po­lit­i­cal ten­sions are ac­cen­tu­at­ing vul­ner­a­bil­i­ties in the coun­try’s sov­er­eign credit pro­file,” S&P added.

En­ergy im­prove­ments would likely re­duce some of the eco­nomic bot­tle­necks, and labour and min­ing re­forms could en­gen­der an im­prove­ment in con­fi­dence, the agency said.

“Pro­longed strikes, mainly in min­ing and some man­u­fac­tur­ing sec­tors ... con­tinue to pose struc­tural weak­nesses to South Africa’s econ­omy,” S&P said.

“On the fis­cal side, the gov­ern­ment is show­ing greater re­solve to re­duce fis­cal deficits at a faster pace than we ex­pected,” S&P said.

Dur­ing his bud­get speech in Fe­bru­ary, Fi­nance Min­is­ter Pravin Gord­han said that gov­ern­ment would look to re­duce its fis­cal deficit to 3.2% of GDP this year, 2.8% in 2017 and 2.4% in 2018.

How­ever, S&P noted that po­lit­i­cal ten­sions had in­creased in South Africa.

“We be­lieve that these po­lit­i­cal fac­tors – if they con­tinue to fes­ter – could weigh more on in­vestor con­fi­dence than in­con­clu­sive labour or min­ing sec­tor re­form,” S&P said.

Look­ing ahead, S&P said it fore­cast that South Africa would grow by 1.5% next year be­fore growth ac­cel­er­ated to more than 2% by 2019.

“We also es­ti­mate that real GDP per capita will stand at $5 000 (R75 500) this year and rise com­men­su­rately with growth through our fore­cast hori­zon to 2019,” S&P said.

Cham­ber of Mines CEO Roger Bax­ter said: “We are pleased at this out­come as it is in line with the re­al­ity of the sit­u­a­tion. But we are aware that it gives the coun­try no room for com­pla­cency.

“The cham­ber will play its part in work­ing with other el­e­ments of or­gan­ised busi­ness, with gov­ern­ment and with or­gan­ised labour to do what is nec­es­sary to sus­tain an in­vest­ment-grade rat­ing and hope­fully, ul­ti­mately, to im­prove that rat­ing.”

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