South Africa is on a ‘slow grind’ to junk – but one thing can still get us there faster
While South Africa has managed to avoid the damaging ‘junk’ status from ratings agencies in 2016, it does not mean the country has worked its way out of its slow economic spiral downwards.
Commenting on Standard & Poor’s (S&P) Global’s stay on South Africa’s international currency rating on Friday, research analyst at Nomura, Peter Attard Montalto said the decision to keep the country above junk status was in line with most contemporary projections.
However, while S&P were giving the country the benefit of the doubt on the back of a more stabilised labour strike situation, and a much-improved energy supply – these kinds of reprieves cannot continue forever, he said.
“The downgrade of the local currency rating is a crystallized view of increasing risk in the eyes of S&P – from politics, a poor growth outlook, and ‘piecemeal’ implementation of reforms.
“S&P also noted the long run fiscal and debt outlook is deteriorating faster than they had previous presumed. They remain very worried about the risks of increasing political noise and contestation in 2017 – saying specifically there was a risk (that it could) alter the direction of policy (which might be a coded reference to a reshuffle).”
According to Attard Montalto, South Africa is not a “shock wham bham” crisis country that just suddenly jumps to junk status – “it is a slow grind of under performance,” he said.
Every time a review comes up, more and more is chipped away, little by little.
However, there was one thing that could shock the markets, the analyst noted – and that would be the firing, or otherwise removal, of finance minister Pravin Gordhan.
“A downgrade to the (foreign currency) was possible, based on slippage to fiscal and growth metrics. It didn’t happen, as benefit of the doubt was given – and so they (ratings agencies) wait, basically, for more slippage before downgrading,” Attard Montalto said.
“That may well come after the budget – but again it will always be marginal – never a huge shock, (barring a Pravin Gordhan exit),” he said.
Read: South Africa avoids junk status – but it’s not all good news
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