Ratings agencies junked South Africa too soon: analyst
Chair in Actuarial Science at the University of Pretoria’s Department of Actuarial Science, Dr Conrad Beyers, says it’s disappointing that ratings firm S&P Global hasn’t put South Africa on notice for an upgrade, considering its latest statements on how positive things are for the country.
S&P announced on Tuesday that it has increased its economic growth forecast for South Africa from 1% to 2%.
The firm referred to the positive changes that accompanied the change in South Africa’s leadership and ensuing policy announcements, and also noted that other economic indicators such as inflation figures and bond yields are looking better than expected.
However, according to S&P Global sovereign analyst Gardner Rusike, South Africa is “not yet anywhere near going upwards as far as the rating is concerned”.
The firm said that South Africa’s growth rate was far too low, and would have to be significantly higher to have an upside effect on the country’s credit rating. This, Rusike said, was despite all the more positive news in the past few months.
According to Beyers, however, S&P’s positive remarks about South Africa strengthens the argument that the group’s downgrade of South African debt to full junk status in November 2017 can be considered premature.
Beyers said that it is well known that S&P’s decision to downgrade the country to junk status last year would be a difficult one to reverse in the short term.
“It is a major decision for any rating agency to downgrade a country to junk status. A quick upgrade will be an acknowledgement of error in judgement and will be viewed as an egg on the face for such as rating agency,” Beyers said.
Beyers said that it now appears that S&P mistakenly expected that Cyril Ramaphosa would not win the ANC leadership contest in December 2017 and later become president of the country.
“It could reasonably be foreseen in November 2017 that a structural break was possible for South Africa. This was enough reason to follow a wait-and-see approach (such as Moody’s) instead of deciding on a severe downgrade at that point in time,” he said.
S&P noted a number of factors that weigh down on the local economy, including a number of policy related issues and other subjective considerations.
“S&P may surprise South Africans by upgrading their rating in May. However, it is more likely that they will follow a much slower approach to avoid criticism of premature downgrades. The process can be stretched out over many months through upwards adjustments of credit outlooks, for different ratings categories separately, etc,” Beyers said.
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