S&P maintained South Africa’s foreign debt rating at BBB- with a negative outlook, citing concerns about economic growth, reliable energy, labor reform and mining legislation, and warned that it could lower the rating by year-end or later if policy measures don’t turn around the economy.
Advertisement
The next big hurdle to be faced is with Fitch Ratings – which is expected to give its country review this month.
South Africa will decide by the end of this year which State-owned companies would be privatised or closed as the government cuts spending amid slow economic growth, a senior Treasury official said on Friday.
South Africa dodged the bullet this time, but Standard & Poor’s (S&P) warns that it will keep an eye on what the country is doing to improve or stabilise the country’s credit rating before the next review in November.
“The benefit of this decision is that SA is given more time to demonstrate further concrete implementation of reforms that are underway aimed at achieving higher levels of inclusive growth and place public finances on a sustainable path”, it said.
S&P affirmed the investment grade rating of Africa’s most industrialized country on Friday, keeping at BBB- with a negative outlook, but lowered its economic growth estimate to 0.6 percent from 1.6 percent.
The International Monetary Fund (IMF) forecasts a meagre 0.6 percent growth, while one of the country’s four leading banks, Nedbank, expects 2016 “to be a very weak year, with growth of only 0.2 percent”.
On June 3, 2016, S&P Global Ratings affirmed its long- and short-term “BBB-/A-3” foreign currency and “BBB+/A-2” local currency sovereign credit ratings on the Republic of South Africa.
Africa’s most advanced economy, which expanded by an average 5.0 percent between 2004 and 2007, has also been hit by weak global commodity prices and the economic slowdown in China, plus the worst drought in 100.
S&P affirmed SA’s rating at BBB-, also retaining its negative outlook.
A cut to “junk” status or below investment grade would have pushed up Pretoria’s borrowing costs, making it harder to plug a budget deficit estimated at 3.2 percent of GDP in the 2016/17 financial year.
“Rising political tensions are accentuating vulnerabilities in the country’s sovereign credit profile”. Last month Moody’s held its rating at Baa2.
That Standard & Poor’s did not downgrade us, feels like a miracle given President Jacob Zuma’s protracted “dirty war” against the Minister of Finance, Pravin Gordhan, and National Treasury.
Advertisement
BNP Paribas Cadiz Securities economist Jeffrey Schultz said the S&P statement was somewhat cautious.
