S&P Warns SA About A Possible Downgrade

Advertisement

Standard and Poor’s (S&P) rating agency has warned that SA need not to forget that its sovereign credit rating hangs in the balance if it enters recession or declined in its wealth level.

The warning by the rating agency comes a month after it announced its decision to keep South Africa’s foreign currency rating one notch above sub-investment grade.

S&P, during its announcement of its ratings last December, said it will hold the country’s sovereign debt rating at BBB- but warned about the consequences of low economic growth. While Moody’s made the unexpected decision to upgrade South Africa’s rating to a position two notches above “junk”.

Read Also: You Wont Believe Who Zuma Want To Succeed Him In 2019

This time, S&P has come to warn that weak economic growth and government bailouts of state-owned companies could see Africa’s most industrialised nation downgraded to junk soon.

“We could lower the ratings if GDP growth does not improve in line with our current expectations, or if state-owned enterprises require higher government support than we currently expect,” S&P said while explaining how SA is in danger of missing its fiscal targets.

“Downward rating pressure would also mount if net general government debt and contingent liabilities related to financially weak government-related entities exceeded our current expectations.

“A reduction in fiscal flexibility may also lead us to further narrow the gap between the local and foreign currency ratings.”



Speaking further on the possibility of the country being downgraded, Nedbank economist Nicky Weimar said there remained a 50% chance SA could be downgraded in June, but Sacci CEO Alan Mukoki said there was a higher probability of economic conditions improving.

Weimar further argued that SA’s objective indicators, such as economic growth, reliance on external financing, fiscal metrics and economic policies provided a varied picture of the country’s future.

“I think what saved us in December is the belief that [Finance Minister] Pravin Gordhan is still there and ratings agencies believe he will do what he said he will do. There is still a vulnerability but for now that probably holds” she said as she fingered the country’s deteriorating economic policy which has resulted in policy uncertainty, which is something ratings agencies have emphasised continuously.

“That is bad and I don’t think it’s going to get better in the year you choose your new leadership within the ANC. You’ll probably get that it will worsen and they [S&P] will probably anticipate that.”

Read Also: Believe Minister Gordhan When He Says SA Will Avert Downgrade

However, Sacci CEO Alan Mukoki argue that there is a high probability there will not be a junk status. This is ” because the conditions will not deteriorate from where we are. Either we continue to get a stay of execution or they [credit rating agencies] will say we are on a watchlist, or things improve.”

He said he hoped the improving business confidence was indicative of the fact that perhaps people had gone past the August issues around local government. Life had continued as normal after rating agencies provided a reprieve in 2016 .