mobile menu mobile search

Junk status still likely for South Africa: ratings agency

Junk status still likely for South Africa: ratings agency

South Africa’s fiscal budget for 2016 lacks significant policy announcements that will spur GDP growth, or provide enough business confidence, rating agency Standard & Poor’s (S&P) said on Thursday.

It said in a statement that its negative outlook of South Africa was not “immediately affected by the National Treasury’s 2016 budget” and that “no rating actions are currently warranted”.

S&P’s rating of South Africa is the most negative out of the three rating agencies, which includes Moody’s and Fitch.

South Africans were hoping Finance Minister Pravin Gordhan’s budget speech would convince the rating agencies that the country could pull itself out of its economic rut.

Moody’s reacted immediately on Wednesday, saying it was concerned that the specific revenue measures that will accomplish the smaller deficits predicted for 2017/18 and 2018/19 have not yet been identified.

“Only a rating committee may determine a rating action and, as these developments (listed below) were not viewed as material to the ratings, neither they nor this report were reviewed by a rating committee,” S&P said in a statement.

The rand was trading 0.78% stronger to the dollar on Thursday at R15.54.

In December, before Nhlanhla Nene was fired as finance minister, S&P kept the long- and short-term foreign currency sovereign credit ratings on South Africa at BBB-/A-3 and BBB+/A-2 for the long- and short-term local currency ratings.

S&P said Treasury’s budget projections are consistent with its assumptions of planned fiscal consolidation, albeit against a sharp downward revision of GDP growth in 2016.

“The negative outlook reflects our view that GDP growth might be lower than we currently expect; for instance, due to persistent electricity shortages, continued weak business confidence, or labour disputes escalating again,” it said in December.

Treasury confirmed this outlook in its budget review on Wednesday, saying GDP growth is estimated to be 0.9% in 2016, 1.7% in 2017 and 2.4% in 2018. “This is considerably lower than last year’s estimates,” it said.

Updating its view on Thursday, S&P said GDP growth rates are still subdued, and will likely remain so in the medium term, posing a threat to consolidation plans.

“The announced budget lacks significant policy announcements that we think would immediately spur GDP growth, or provide much-needed business confidence to the private sector,” it said.

It warned that labour relations had the potential to further stagnate GDP growth this year in the mining sector.

“We consider South Africa’s fiscal consolidation remains vulnerable to lower-than-expected GDP growth and shortfalls in revenues,” it said.

Moody’s also said Treasury’s revised growth forecasts of 0.9% and 1.7% are still slightly more optimistic than its own predictions of 0.5% for 2016 and 1.5% for 2017.

S&P said it noted that the budget’s ambitious fiscal consolidation targets for 2017-2018 and 2018-2019, which aim to reduce fiscal deficits at a faster pace than the Treasury previously anticipated.

It believes the fiscal trajectory will be exposed to contingent liabilities resulting from state-owned entities with weak balance sheets, which may require more support than what the government has currently provided.

“Debt-servicing costs are vulnerable to the domestic interest rate environment and to a lesser extent to exchange rate weakness,” it said.

Mark Joffe, CEO of Global Credit Ratings, said the budget speech showed a pragmatic approach by Gordhan against a backdrop of subdued economic growth, twin deficits and a rising trend of government debt to gross domestic product.


More on the budget

Where the budget won and lost

Recession still a reality in South Africa

Moody’s worried about growth

Budget won’t prevent SA downgrade: DA

News24Wire is the news wire service offered by Media24. It covers all the latest happenings in South Africa, and abroad....
TAGS: Active S&P
Join the Conversation
  • Datsun Wangdoodle

    and yet, the majority of the developed first world continue to borrow creating the biggest deficit in terms of % of their GPD.

  • Erlo Muhl

    I believe that these 10 things are basically needed for a healthy economy and should be implemented, for our economy to show growth. Some of them are very simple things which are lacking at the moment in the way this country is governed. Fix these, and investments will flow into our country. I will try and mention them: 1.Don’t be afraid if foreigners buy property here, 2.Stop allowing other countries to dump their overproduction in our country, without a reasonable tariff charge.3. Educate people properly, scientifically and practically, that want to own Farms, Help them wat ever their ancestry, let them pay a basic amount towards the purchase of the property and subsidize them with the interest they have to pay in the first 3-5 years and then let them address their debt like everybody else does. Give them a title deed, once they have registered the property on their name and have fulfilled all the basic responsibility, towards their purchase. The same should apply to all residential properties, see to it that they obtain a title deed for what they have bought and paid for. 4.Encourage people to further their practical know how for doing their work, as qualified artisans or taking responsible positions in business or controlling government jobs, Have strict control over all government employees and have people to control their work. 5. Remove all quotas that affect your skins color: Etc.: In all fields of employment as well as in education. This would prove that in 21years some progress has been attained in nonracial government which is lacking at present. 6. Address all criminality with an iron fist to show the outside world of what can be achieved in a country well run. 7. Let all ministers and other delegates that fly overseas for government duties fly economy class and cut the delegations to the minimum required. 8. Make sure all people that have to represent the country are capable to handle their duties efficiently, use the best available people of whatever ancestry, this will be interpreted as wise by the parties they negotiate with. 9. Further Tourism in South Africa: by trying to guaranty a safe visit to our country, through strict control over criminals. 10. Stop all racial quotes, in all directions between all people of whatever color living here in South Africa. If any government can achieve this, this country will soon prosper. Let us vote for a government that applies these prerequisites. Sorry for the long discusion, but things must change soon.

    • wessel

      Yess, but you need a Minister of Finance that can manage the ANC.
      Gordhan exposed his hand. He is too weak for the Zupta mafia.
      He should have taken the bull by the horn and cut…he failed as Minister of Finance in the crisis.
      What the ANC has achieved now is to hand over the management of the economy to the IMF. It will be painful for the poor.
      It will be more painful for the ANC fat cats.
      But that is what the ANC has chosen after many warnings from knowledgable people.
      I heard a rumour that Des van Rooyen being the most qualified economist & ANC comrade, freedom fighter and failed municipal manager will be demoted to Minister of Finance.

  • Erlo Muhl

    What I forgot is: Reduce the cabinet to 12 -15 ministers and make them do their Job propperly. Who does not perform replace him soon..

  • Jonas Van Die See

    “South Africans were hoping Finance Minister Pravin Gordhan’s budget
    speech would convince the rating agencies that the country could pull
    itself out of its economic rut.”

    Speak for yourself.

  • #TimeForChange

    Corruption and tenderpreneurs lock millions of people out of the real economy and a downgrade to junk status will keep millions more out of the real economy. That education the students are demanding will be worth little if there are no jobs….Now is the last chance for students to stand up against corruption and tenderpreneurs.

Join our newest FREE BusinessTech newsletter today!