S&P snub signals more pain for SA in the form of a credit downgrade
FINANCE Minister Malusi Gigaba embarked on a frantic lone drive this week to reassure international ratings agencies just hours after S&P gave its clearest indication yet that the country was headed for another downgrade.
S&P chose to meet the country’s key economic players but ignored the ruling ANC. The snub comes just days after Moody’s dismissed Gigaba’s Medium-Term Budget Policy Statement (MTBPS) as an abandonment of his predecessors’ fiscal consolidation path.
On Friday analysts said the negative mood was almost confirmation that the country would be downgraded when the agencies pronounce on their verdict this month.
Johann Els, a senior economist at Old Mutual Investment Group, said the MTBPS had made no attempt whatsoever to continue with the policy of fiscal consolidation and no attempt had been made at further expenditure cutbacks.
“The lack of plans for fiscal consolidation and reining in the debt ratio means that South Africa’s local currency credit ratings will likely be cut to junk status within weeks. Multiple downgrades within the next six to 12 months are very likely,” Els said.
Gigaba is said to have met with Moody’s on Friday, following a meeting with S&P on Thursday.
A downgrade by S&P or Moody’s would push the country’s bonds out of widely used global bond indexes that rely on investment grades only.
It would also see massive capital flight and put further pressure on the rand, which is already fractured by political and policy uncertainties as well as weak consumer and business confidence.
Moody’s is on record as having already termed the MTBPS “credit negative”, warning that fiscal prudence would give way to rhetoric in the run-up to the 2019 elections.
A Moody’s delegation is Finance Minister Malusi Gigaba. expected in SA next week.
The MTBPS raised deficit for the current year to 4.3 percent of the gross domestic product (GDP), up from the 3.1 percent target announced in the February on the back of a R51 billion projected revenue shortfall for this year.
It expressed further shortfalls on revenue collection in the next two years.
However, this week the cabinet said the MTBPS continued to drive inclusive growth and fiscal consolidation while protecting and promoting social expenditure in education, health, basic infrastructure and social security.
“In a constrained fiscal space, the government’s com- mitment to meet challenges in South Africa is demonstrated by interventions to grow township and rural economies, strengthen good governance at state-owned companies, as well as the additional significant allocation of funding for higher education,” the cabinet said.
Investec chief executive Annabel Bishop said any communication from S&P was likely to have a negative impact on the rand, as the agency remained the only one not to have made any public pronouncements on the recent MTBPS.
“On the local currency credit rating front (also currently Baa3 with a negative outlook), Moody’s could wait until after the February 2018 Budget before downgrading,” she said.
“S&P has not released an official communication post-MTBPS, but it is also likely to downgrade its local currency long-term sovereign rating for SA of BBB-, with a negative outlook, potentially on November 24.”