9 positive things S&P said about SA
South Africa’s economic position has been rocked by the axing of finance minister, Pravin Gordhan, which subsequently led to ratings agency, Standard & Poor’s, downgrading the country’s credit grade to junk status.
S&P cited recent executive changes which it said, have put at risk fiscal and growth outcomes.
It also noted that internal government and party divisions could delay fiscal and
structural reforms, and potentially erode the trust that had been established between business leaders and labor representatives.
In a statement on Tuesday (4 April), new finance minister, Malusi Gigaba, said that while the ratings cut was a setback…”now is not a time for despondency”.
“We have many strengths that we can leverage to grow our economy inclusively. We will act decisively as government, in collaboration with all economic and social partners,” he said.
“While we recognize and will address the concerns raised by the agencies, the following
credit rating strengths – which they have acknowledged – should give all of us confidence,” the minister said.
They are:
- The Constitution and the Public Finance Management Act (1999) entrench a robust, centralised, accountable framework for fiscal management;
- A stable monetary policy framework;
- The floating exchange rate regime continues to provide the economy with buffers against external shocks, while at the same time limiting the risk of excessive domestic exposure to foreign currency liabilities;
- Government has low foreign currency-denominated debt with long maturities (accounting for around 10% of total government debt and only 4% of GDP) which is much lower than most of its peers. The domestic bond market is deep and liquid, reducing debt-refinancing risks. Loans and guarantees by subnational government are limited and subject to national legislation. Provinces are almost entirely funded through transfers from national government. Borrowing by local governments is capped and limited to major metros with significant revenue-raising powers;
- The fiscal framework is underpinned by credible macro-fiscal forecasts. We have an efficient tax collection capability. Despite new spending pressures, government has maintained the expenditure ceiling;
- The National Treasury’s long-term model suggests that existing core social spending priorities (e.g. education, health and social grants) are sustainable over the coming decades. In addition, the Government Employee Pension Fund is well funded;
- South Africa exports are increasing, particularly to Asia and Europe. Increasing foreign investments by SA companies are resulting in higher dividends from their offshore investments. Therefore, the deficit on the current account of the balance of payments improved from 5.3% of GDP in the first quarter of 2016 to 3.1 per cent of GDP in the second quarter of 2016;
- The banking system is strong and well-regulated with capital adequacy ratios well above the minimum regulatory capital requirement of 15%;
- We’ve resolved the energy challenge in the short term, and now have sufficient electricity supply for current demand.
Read: Infographic: How credit ratings work and how junk status will affect you
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