{"id":168761,"date":"2017-04-06T11:42:22","date_gmt":"2017-04-06T09:42:22","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=168761"},"modified":"2017-04-06T12:20:21","modified_gmt":"2017-04-06T10:20:21","slug":"how-long-it-could-take-south-africa-to-climb-out-of-junk-status","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/finance\/168761\/how-long-it-could-take-south-africa-to-climb-out-of-junk-status\/","title":{"rendered":"How long it could take South Africa to climb out of junk status"},"content":{"rendered":"<p>While it is well <strong><a href=\"https:\/\/businesstech.co.za\/news\/banking\/168045\/infographic-how-credit-ratings-work-and-how-junk-status-will-affect-you\/\" target=\"_blank\">documented <\/a><\/strong>that junk status has a number of dire consequences for both South Africa, and its people, more important is to consider how long the country can expect to be stuck with a junk rating say Lullu Krugel and Christie Viljoen, economists at KPMG.<\/p>\n<p>On Monday, ratings agency S&amp;P Global\u00a0lowered South Africa\u2019s sovereign debt to below investment grade, with Fitch and Moody\u2019s likely to follow.<\/p>\n<p>Hours after S&amp;P announced that it would be downgrading South Africa to junk status, Moody\u2019s confirmed that it would also be placing the country on review for downgrade, though the group has now delayed its report for at least 30 days as it assesses the country.<\/p>\n<p>Economists have warned that the downgrade to junk is likely to trigger a recession as its effects spread to the wider economy.<\/p>\n<p>\u201cThe downgrade greatly complicates the prospects for South Africa being able to stage an economic recovery. Without a growth recovery, employment growth and revenue collection will stagnate and may even decline,\u201d said CEO of the South African Institute of Race Relations, Frans Cronje.<\/p>\n<p>Research by KPMG into the sovereign ratings assigned by the three largest rating agencies \u2013 S&amp;P, Fitch Ratings and Moody\u2019s Investors Service \u2013 over the past three decades indicates that 15 countries have seen their investment-grade ratings revoked but were then able \u2013 over time \u2013 to regain this status.<\/p>\n<p>These countries include Colombia, Croatia, Hungary, Iceland, India (twice), Indonesia, Ireland, Korea Republic, Latvia, Romania, Slovakia, Slovenia, Thailand, Turkey and Uruguay.<\/p>\n<p>Of these countries,\u00a0Krugel and Viljoen noted that\u00a0the rating downgrades were broadly grouped into four categories:<\/p>\n<ul>\n<li>Economic deterioration (Colombia, Hungary, India, Latvia and Romania);<\/li>\n<li>Unsustainable macroeconomic imbalances (India, Slovakia and Slovenia);<\/li>\n<li>A\u00a0 domestic currency, financial or banking crisis (Croatia, Iceland, Ireland, Thailand, Turkey and Uruguay); and<\/li>\n<li>A currency, financial or banking crisis resulting directly from neighbouring or regional influences (Indonesia and the Korea Republic).<\/li>\n<\/ul>\n<p>&#8220;These countries\u2019 diverse experiences show that it takes,<strong> on average, seven years to again graduate to the investment-grade club.&#8221;<\/strong><\/p>\n<p>The economists said that countries like Croatia, Iceland, Ireland, Korea Republic, Latvia and Slovenia were able to do so in three years or less. At the opposite end of the spectrum, and <strong>depending on which rating agency was involved, there were instances where it took Colombia, India, Indonesia, Turkey and Uruguay more than a decade.<\/strong><\/p>\n<hr \/>\n<h3 class=\"my-4\"><span style=\"color: #000000;\"><b>Strategies<\/b><\/span><strong>\u00a0used to return to investment-grade<\/strong><\/h3>\n<p>In addition to an analysis of why countries had historically been downgraded to junk,\u00a0Krugel and Viljoen also released a report detailing how these countries typically managed to return to an investment-grade rating.<\/p>\n<p>&#8220;Strategies and narratives on countries that recovered their investment-grade ratings are broadly grouped into six categories,&#8221; noted the duo.<\/p>\n<p>These include:<\/p>\n<ul>\n<li>Fiscal consolidation and\/or austerity (Hungary, Ireland, Latvia, Romania and Slovenia);<\/li>\n<li>Significant economic and political reforms (Colombia, India, Indonesia, Turkey and Uruguay);<\/li>\n<li>Declining external and fiscal vulnerabilities (India and Thailand);<\/li>\n<li>Debt restructuring and economic policy reform (Korea Republic);<\/li>\n<li>Privatisation of the sovereign\u2019s holdings in private\/semi-state companies (Croatia); and<\/li>\n<li>Active intervention by a newly elected government (Iceland and Slovakia).<\/li>\n<\/ul>\n<hr \/>\n<h3 class=\"my-4\"><strong>South Africa<\/strong><\/h3>\n<p>South Africa is most closely associated with the countries experiencing economic deterioration and, possibly, those having unsustainable macroeconomic imbalances, said Krugel and Viljoen.<\/p>\n<p>&#8220;On the issue of how South Africa will be able to return to its former investment-grade rating, the key element in a recovery process is that admission that a problem exists and that work is needed to rectify this,&#8221; Krugel and Viljoen said.<\/p>\n<p>However the economists noted that following the\u00a0downgrade announcement by\u00a0S&amp;P, the National Treasury appeared far from concerned with the development<\/p>\n<p>&#8220;The commitment to fiscal consolidation was reiterated, coupled with a rebuttal that South Africa is committed to a predictable and consistent policy framework and that open debate on policy matters should not be a cause for concern.&#8221;<\/p>\n<hr \/>\n<p><strong>Read:\u00a0<a href=\"https:\/\/businesstech.co.za\/news\/banking\/168753\/south-african-banks-downgraded-to-junk\/\" target=\"_blank\">South African banks downgraded to junk<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>A KPMG report details a list of all the countries ever downgraded to junk status, how long they were stuck with the label, and how they were able to pull themselves back up to an investment-grade rating again.<\/p>\n","protected":false},"author":10,"featured_media":94247,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11121],"tags":[26,1458],"class_list":["post-168761","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","tag-headline","tag-kpmg"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/168761","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=168761"}],"version-history":[{"count":12,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/168761\/revisions"}],"predecessor-version":[{"id":168845,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/168761\/revisions\/168845"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/94247"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=168761"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=168761"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=168761"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}