SA credit rating dropped to ‘negative’

FITCH ratings agency yesterday revised the outlook on South Africa to negative from stable and affirmed its credit rating at BBB, near the bottom of the investment-grade scale.

The agency said the outlook revision was partly due to a strike at platinum mines, the country’s longest-ever mining strike that began in January when workers downed tools demanding higher wages.

On Thursday, the country’s three top platinum producers – Anglo American Platinum, Impala Platinum and Lonmin – said they had “in principle” reached a deal to end the 21week deadlock over pay.

Fitch said South Africa’s outlook for growth had deteriorated after a contraction in the first quarter of this year, and it revised its 2014 GDP forecast down to 1.7% from the 2.8% that it issued during the last country review in December 2013.

The agency said that the government “faces a challenging task to raise the country’s growth rate and improve social conditions, which has been made more difficult by the weaker growth performance and deteriorating trends in governance and corruption.

“This will require an acceleration of structural reforms,” it said.

South Africa holds around 80% of the world’s known plat inum reserves, and platinum group metals raked in 9.0% of export earnings last year.

The mining strike helped push the economy into its first contraction since the global economic crisis five years ago in the first quarter of this year, raising the spectre of recession.

In response, the Treasury said yesterday it is committed to “fiscal sustainability” and is already working on addressing some of the issues raised by Fitch.

The Treasury said government was “alive to the growth challenges” facing South Africa. Fitch cited factors such as strikes hampering economic growth‚ deteriorating economic growth outlook and large current account and budget deficits for its decision.

Despite going ahead with the implementation of the National Development Plan‚ the ANC government would also implement reforms aimed at addressing South Africa’s growth potential, the agency said.

Fitch

raised

concern

that weak economic growth would mean government was unable to reduce the budget deficit as quickly as it would like.

“Government is resolute in its commitment to maintain fiscal sustainability and keep its debt within manageable levels‚” the Treasury said.

“While short-term cyclical factors might cause marginal deviations from targets‚ we will not deviate from the longterm trajectory‚” the Treasury said.

— BDlive/AFP