More uncertainty after mixed rating reviews

THE mixed credit rating reviews on Friday have resulted in a continued uncertain outlook for South Africa’s credit ratings for the next few months‚ economists say.

S&P downgraded its sovereign credit rating with a long-term foreign currency rating of BB‚ and a long-term domestic currency rating of BB+‚ with a stable outlook on Friday night.

South Africa, however, had received a reprieve from Moody’s‚ with that rating agency the only one of the big three to still rate both foreign and South African government bonds as investment grade.

However‚ it had placed the country on review for a downgrade.

“Essentially‚ S&P has given up on South Africa being able to restore its fiscal strength and promote economic growth over the next few years‚ whereas Moody’s seems to have given the government an urgent opportunity to undertake the structural reforms needed to promote higher economic growth and alleviate the fiscal deterioration‚” Econometrix chief economist Azar Jammine said yesterday.

S&P had taken a view that irrespective of the ANC’s presidential election outcome next month‚ there were likely to be huge obstacles to undertake reforms that might improve economic growth, Jammine said.

The credit ratings agencies had identified three problems in the fiscal position.

ý The first is that projected growth in state revenue is just too low to accommodate a reduction in the budget deficit in the face of difficulty in reducing government expenditure due to social pressures;

ý The second is a concern about the possible liability for the government, emanating from poor corporate governance at state-owned enterprises; and

ý The third is that economic growth remains unacceptably low and that fiscal consolidation requires dramatic intervention to curtail expenditure.

Jammine said Moody’s decision suggested that if it saw sufficient action taken to address economic weaknesses by a new leadership after the ANC conference‚ it might yet hold off a downgrade to junk.

“In this regard‚ the 2018 February budget is perceived by the agency as being the litmus test of required action to improve the fiscal situation‚” he said.

Economist Mike Schussler said reducing government spending was possible.

He suggested some of the savings could be achieved by slashing the huge salary bill of government employees and reducing the number of civil servants.

“Moody’s is hoping there will be a moderate ANC candidate [elected next month] who will make a good statement about the economy and show an intention to fix the economy,” Schussler said. – TimesLIVE