![\"Credit](\"http:\/\/businesstech.co.za\/news\/wp-content\/uploads\/2015\/12\/Credit-rating-history-1994-2015-640x416.png\")
<\/p>\nRatings agency Standard & Poor’s has warned that any deviation from the South African fiscal policy under new finance minister David van Rooyen could lead to a credit downgrade.<\/p>\n
Last week, ratings agencies downgraded South Africa’s credit status to one notch above “junk” with little hope that the country will pick itself out of an economic slump.<\/p>\n
On Friday (4 November) ratings firm Fitch downgraded SA’s credit rating by one notch to BBB-, the lowest investment grade. This was due to a slowing economy and rising debt, it said.<\/p>\n
The group revised its growth prospects for the country down from 2.1% to 1.4%, and the projection for next year has been changed from 2.3% to 1.7%.<\/p>\n
Fitch’s downgrade brought it in line with other ratings agency\u00a0Standard & Poor’s which has the country at BBB-. Moody’s has the country one notch higher at Baa2 (a BBB equivalent).<\/p>\n
While Fitch has assigned South Africa’s position as “stable” – S&P changed its outlook to “negative”, anticipating even slower growth in the country than before.<\/p>\n
This puts South Africa at very real risk of becoming a junk country, which has substantial implications for investment.<\/p>\n
Professional investors, such as hedge funds, pension funds and asset managers are prevented (by policy) from investing in junk countries.<\/p>\n
Former Reserve Bank Governor, Tito Mboweni last week warned that \u201ca dark cloud, mist or fog is gathering upon us as a country\u201d.<\/p>\n
He said that the country needs an \u201cimmediate defence mechanism\u201d to avoid falling into a junk rating. “We cannot afford to become junk status,\u201d he said.<\/p>\n
\u201cJunk status as we know translates automatically to cost of borrowing, re-ordering of corporates on the investor\u2019s horizon within his or her rules or within certain indices like the MSCI. The immediate defense mechanism is based on three pillars: a credible fiscal stance (we dare not deviate from the Budget stance we adopted in October, please!); re-enforce central bank independence (I know this is intangible, but let\u2019s do it!); and finally, respect for all other independent institutions (the judiciary and chapter nine institutions).\u201d<\/p>\n
South Africa’s credit rating levels peaked between 2008 and 2011.<\/p>\n
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The ratings firms have laid South Africa’s economic turmoil squarely at government’s feet.<\/p>\n
Analysts and economists have warned that, unless President Jacob Zuma’s administration changes tack, the country is in serious risk of being junked in the next round of ratings.<\/p>\n
Looking at South Africa’s credit rating history, it’s clear to see that the country has suffered ratings cuts consistently during Jacob Zuma’s tenure.<\/p>\n
Zuma took over the presidency during a global economic crisis which took a number of years to overcome.<\/p>\n
Since global recovery, however, the presidency has not managed to overcome economic challenges such as widespread unemployment and corruption and labour unrest.<\/p>\n
Alarmingly, former finance minister, Nhlanhla Nene was pushing back against unchecked spending by government, and was forcing politicians to tighten their belts- a move which analysts say cost him his job.<\/p>\n
Zuma announced on Wednesday evening (9 December) that Nene had been removed from the finance portfolio to be replaced by the unknown David van Rooyen.<\/p>\n
Economists have stated that the move will likely see the economy fully under Zuma’s control, with expectations that spending will continue unchecked – including the fast-tracking of a R1 trillion nuclear build deal.<\/p>\n
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