CityPress - - Business -

South Africa will end 2016 with its in­vest­ment grade rat­ing in­tact. This fol­lows the de­ci­sion by all three ma­jor rat­ings agen­cies to keep the coun­try’s sov­er­eign rat­ing within the key in­vest­ment grade scale.

How­ever, the coun­try re­mains at high risk of be­ing down­graded to “junk” sta­tus in the com­ing months.

Last week, Fitch and Moody’s In­vestor Ser­vices an­nounced their de­ci­sions. On Fri­day, S&P Global an­nounced that it had cut South Africa’s lo­cal cur­rency rat­ing to the same level as our for­eign cur­rency rat­ing of BBB – the last rung of in­vest­ment grade – while at the same time keep­ing the out­look on both rat­ings as neg­a­tive. The news caused the rand to firm to 13.88 to the US dol­lar, its strong­est level for Fri­day, from 13.93 at 5pm, when the JSE closed.

“We low­ered the long-term lo­cal cur­rency rat­ings on South Africa be­cause its fis­cal fi­nanc­ing needs are in­creas­ing be­yond our pre­vi­ous base-case ex­pec­ta­tions,” S&P said.

“We also be­lieve po­lit­i­cal events have dis­tracted from growth-en­hanc­ing re­forms, while low GDP growth con­tin­ues to af­fect South Africa’s eco­nomic and fis­cal per­for­mance,” the agency added.

“The neg­a­tive out­look re­flects the po­ten­tially ad­verse con­se­quences of per­sis­tently low GDP growth for the pub­lic bal­ance sheet. South Africa’s pace of eco­nomic growth re­mains a rat­ing weak­ness.

“The coun­try’s long­stand­ing skills short­age and ad­verse terms of trade also ex­plain poor growth out­comes, as does the cor­po­rate sec­tor’s cur­rent pref­er­ence to de­lay pri­vate in­vest­ment, de­spite high mar­gins and large cash po­si­tions.”

The CEO Ini­tia­tive, along with Busi­ness Lead­er­ship SA and Busi­ness Unity SA, said: “The busi­ness com­mu­nity wel­comes the de­ci­sion by S&P to re­tain South Africa’s sov­er­eign credit rat­ing. We recog­nise that a lot of work is still nec­es­sary to reach higher lev­els of growth and we re­main firmly com­mit­ted to struc­tural re­form.”

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