Why S&P is confident of SA’s future

Rating agency believes economy will rebound as confidence is boosted by implementation of government reforms

A report by credit rating agency S&P Global Ratings has indicated it is not all doom and gloom for SA
A report by credit rating agency S&P Global Ratings has indicated it is not all doom and gloom for SA

Credit rating agency S&P Global Ratings is confident SA’s economy will rebound and public finances will stabilise as the government pursues economic and social reforms.

S&P is one of two agencies that rate SA’s credit-worthiness at sub-investment grade.

Following the recession and a weak growth outlook for 2018, S&P has said in a report that it anticipates that the “implementation of reforms, including the recently announced fiscally neutral growth package, will boost investor confidence, investment, and growth”.

The economy is expected to recover and average growth of more than 2% between 2019 and 2021.

Growth is expected to rise from a tepid 0.8% in 2018 to 1.8% in 2019.

“According to our projections,

from 2019 economic growth will pick up modestly, helping contain the rise in government debt,” the report reads.

S&P commended the economic stimulus plan announced in September 2018 by President Cyril Ramaphosa in response to the recession.

The plan aims to revitalise growth without diverging from the fiscal stance, S&P said.

The credit rating agency also said the new leadership had taken steps to enhance the governance and financial sustainability of state-owned enterprises (SOEs). “If successful, we believe these steps will have a positive impact on mediumterm growth and the stability of public finances,” S&P said.

It does not expect investment to be significantly hampered by land expropriation without compensation and changes to the constitution.

“While some businesses will reconsider investing in the country, we expect that the rule of law and enforcement of contracts will largely remain in place and will not significantly hamper investment levels in South Africa.”

While the government received a vote of confidence for pursuing reforms, S&P warned that the government debt burden was growing.

In November 2018, S&P kept the rand-denominated debt rating at BB+, the first notch of sub-investment grade, and the foreign currency rating at BB, two notches below investment grade.

“The stable outlook reflects our view that the South African government will pursue a range of economic, social, and fiscal reforms, albeit over an extended period of time,” S&P said at the time.

The credit rating agency 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 reshuffle of the cabinet 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 currency debt – which accounts for about 90% of government bonds – at investment grade until November 2017.