RATING AGENCY HAPPY WITH SA’S DIRECTION
S&P Global Ratings says it is satisfied with signals the government is sending out
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 was heading in the right direction but have to walk a 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 there were two aspects that 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 concern, or if economic growth performed even worse than it has.”
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,” he said.
The credit rating agency’s forecasts are broadly in line with Treasury. 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 was a lot of bad news in the medium-term budget policy statement (MTBPS), he said, including growth forecasts being revised down and the fiscal trajectory being revised up to above the 4% mark. It was clear that “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,” said Bhatia.
In addition to this, the estimates on contingent liabilities are also higher.
However, the positives were 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 for investors.
S&P downgraded SA to junk status last year, in response to the surprise cabinet reshuffle and an unfavourable MTBPS 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.
S&P is scheduled to make its next decision on November 23.