SA has one year to up ratings
SOUTH Africa will have to keep a careful eye on its balance of payments and fiscal deficits, and move closer towards political stability, if it wants to hold on to its investment grade credit rating next year.
This is because ratings agency S&P Global Ratings will have to resolve its negative outlook on SA’s credit rating within 12 months – by either changing it to stable or downgrading it.
S&P held back from downgrading SA’s rating to sub-investment grade, or junk, status on Friday. It kept its rating on SA’s debt on negative outlook.
While the S&P decision meant SA has managed to keep its investment grade rating with all three major rating agencies, the country is now on notice for a downgrade by all three.
Fitch changed the outlook the week before to negative on its rating, which like S&P’s is just one notch above subinvestment grade. Moody’s declined to take any action on SA’s rating last month, keeping it on negative outlook but two notches above sub-investment grade.
All three have expressed concerns about SA’s weak growth and its political instability, both of which could weigh on its efforts to stabilise the public debt as it has promised to do.
Rand Merchant Bank chief economist Etienne le Roux said the fact that two of the agencies – Fitch and S&P – had lowered SA’s local currency rating by one notch this year suggested SA remained on the wrong path and that even more effort was needed to prevent further rating slippage.
Nedbank chief economist Dennis Dykes said though all the ratings agencies had said SA needed structural reform, “they know we are not going to get it until we get political stability – but they now have a sense that they may be coming closer, which is why they don’t want to pull the trigger”.
Leaders of organised business and the CEO initiative that has been working with Finance Minister Pravin Gordhan to avert a downgrade welcomed the S&P decision as a “vindication of the efforts by government, labour and business over the past year”, but said “we see it as a beginning rather than [the] end of a process”.
The Treasury said S&P’s decision had been “a result of working together as South Africans”. — BDLive