SA gets another reprieve as S&P keeps credit rating unchanged

S&P Global Ratings maintained its outlook on SA as stable on Friday, in line with expectations that the rating agency would give the country another reprieve.

It is one of two agencies that rate the country’s creditworthiness at sub-investment grade. A fall further into junk territory would have increased the country’s cost of borrowing.

S&P kept the rand-denominated debt rating at BB+ — the first notch of sub-investment grade — and the foreign currency rating at BB, which is two notches below investment grade, it said on Friday.

The rating agency warned, however, that “anemic economic growth in 2018 and high contingent liabilities continue to weigh on SA’s fiscal prospects”.

It did also say that “The new government is pursuing a series of economic reforms that should help boost the economy from 2019, despite structural impediments, chronic skills shortages, and high unemployment.”

Following the medium-term budget policy statement (MTBPS) in October, S&P said SA was sending out the right signals, although risks remained.

The investment and jobs summits, along with the economic stimulus plan, were moves in the right direction, but the postponement of fiscal consolidation and the lack of clarity around land expropriation were worries, sovereign ratings director Ravi Bhatia said at the time, cautioning that these could lead S&P to cut the country’s sovereign rating.

S&P was the first of the big three ratings agencies to react when former president Jacob Zuma fired respected finance minister Pravin Gordhan in a surprise cabinet reshuffle on March 31 2017. S&P cut SA’s foreign-currency bonds to junk status three days later. Fitch followed suit four days after S&P.

S&P left SA’s local currency debt — which accounts for about 90% of government bonds — at investment grade until November last year.

Both Fitch Ratings and Moody’s Investors Service are yet to make decisions.

Moody’s did not make a call as scheduled in October but released an unfavourable statement following the MTBPS, calling it a credit negative, renewing fear that the country could still be downgraded by the last of the big three rating agencies to rate it above investment grade.

S&P now expects SA’s Gross Domestic Product growth to average 0.8% in 2018 and 1.8% in 2019; these forecasts are slightly higher than the 2018 MTBPS assumptions.

In response to the decision, the Treasury said: “Government notes S&P’s assessment of challenges and opportunities the country faces in the immediate to long-term and remains determined to achieve improved ratings in the period ahead.”

It said the decision afforded SA a chance to “demonstrate further concrete implementation of measures that are aimed at turning around the growth trajectory. These measures include the re-prioritisation of public spending, the creation of the infrastructure fund as well as partnerships for growth”.“To position "SA as an attractive investment destination, government will enhance its collaboration with business, labour and civil society. Another objective of collaboration with other stakeholders would be the creation of an enabling policy environment for inclusive economic growth,” the Treasury concluded.