S&P snub sig­nals more pain for SA in the form of a credit down­grade

The Sunday Independent - - BUSINESS REPORT -

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.”

Ka­belo Khu­malo

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