Credit rating agency S&P Global is expected to publish its review for South Africa on Friday (21 May), in what could be another test for the country’s economy.<\/p>\n
In a research note published on Monday, Nedbank said that S&P is likely to maintain a BB- rating with a stable outlook.<\/p>\n
“The external rating agencies are likely to review their ratings before the next scheduled round of reviews in November 2021 if the public sector wage negotiations are settled at a level that will impose a higher spending commitment on the fiscus,” the bank said.<\/p>\n
\u201cS&P Global Ratings and Fitch Ratings will be reluctant to move a country with reasonably solid institutional governance and deep local financial markets below the psychological hurdle of a B rating.<\/p>\n
\u201cThis hesitancy is likely to delay further downgrades for at least a year. Moody\u2019s and Fitch downgraded their ratings in November 2020, which may persuade them to adopt a \u2018wait-and-see\u2019 at least until the 2022 budget.<\/p>\n
\u201cHowever, a deterioration of economic prospects would increase the chances of further downgrades during this year,” it said.<\/p>\n
In November 2020, Moody\u2019s cut the nation\u2019s foreign- and local-currency ratings to Ba2, two levels below investment grade, from Ba1. The outlook remains negative.<\/p>\n
In the same month, Fitch cut South Africa\u2019s foreign- and local-currency ratings to BB-, three levels below investment grade, also with a negative outlook.<\/p>\n
Wait and see\u00a0<\/strong><\/p>\n While agencies look to adopt a ‘wait and see’ approach around the wage negotiations, they remain largely unconvinced about the government’s efforts.<\/p>\n In a note last week, Fitch said that government is unlikely to meet its goal of freezing public-sector wages over the next three years.<\/p>\n The firm said that the government\u2019s inability to control spending would likely lead to further budgetary issues.<\/p>\n \u201cCompensation of public sector workers accounts for a large share, about 35%, of government expenditure,\u201d it said. \u201cOngoing negotiations on a new wage deal are likely be difficult and the government is unlikely to meet its target of agreeing on a wage freeze, leading to the risk of expenditure overruns.\u201d<\/p>\n It forecast that South Africa\u2019s GDP growth is likely to remain below 2% due to the limited scale of planned structural reform, adding that ongoing issues such as government\u2019s weak implementation record and electricity shortages will continue to hinder efforts.<\/p>\n South Africa\u2019s expenditure reduction is anchored on containing the public sector wage bill over the next three fiscal years.<\/p>\n The government plans to increase the wage bill by an average of only 1.2% per year over 2021\/22 to 2023\/2024, while the 2020\/21 wage freeze is still subject to a Constitutional Court judgement.<\/p>\n <\/p>\n
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