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SA doesn’t impress agencies

Oct 28 2012 13:01 Adri van Zyl

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Johannesburg – Government will have to prove that it can keep to the budget objectives in the medium-term budget policy framework (MTBPF) before it can regain the favour of credit rating agencies.

On Thursday the three biggest rating agencies, two of which have recently lowered South Africa’s credit rating, said uncertainties hung like a dark cloud over the country’s growth and economic prospects.

The Moody’s and Standard & Poor’s (S&P) rating agencies say South Africa’s prospects remain negative owing to the social, political and economic challenges.

On Thursday in the MTBPF Finance Minister Pravin Gordhan had a dig at both these agencies when he said they should have waited until after the ANC conference in December before reducing South Africa’s credit rating this month. 

This is what the Fitch rating agency will do, but from remarks in terms of the MTBPF there is little indicating a positive outcome. 

In a report published after the MTBPF Moody’s said prospects for South Africa’s credit rating remained negative because of the uncertainties about critical policy decisions to be taken at the ANC’s leadership conference in December.

According to the report, it's of the utmost importance for the country’s political and economic stability that “ongoing policy discussions” must be turned into concrete and effective decisions. 

According to Moody’s, social, political and economic problems are now greater than before the 2009 global recession.

The widespread and disruptive strikes in the mining industry, the protracted debt crisis in Europe and the slowing down of economic growth in China are among the factors that hobble South Africa’s growth and job-creation prospects, says Moody’s.

Fitch senior director Richard Fox says the agency is worried about South Africa’s ability to stimulate economic growth and create sustainable job opportunities. 

This, he says, could impede job creation and increase the risk of social upheaval. And it has negative implications for the investor climate and the credit rating.

Dr Konrad Reuss, managing director of S&P in South Africa, says the labour unrest casts a shadow over the economic outlook. He says if the rising unhappiness over social issues is added to the economic uncertainties, any improvement in the credit rating is unlikely.

Moody’s says the mining industry strikes have again drawn global attention to the deep-rooted socio-economic problems which could scare investors off. 

The agency says investors are also deterred by defective infrastructure and high labour costs.

As for state finances, says Reuss, it’s encouraging that the Finance Minister expects the budget deficit to increase only marginally and economic growth to slow only slightly – but this is not a foregone conclusion. 

A further slowdown in economic growth is possible, as well as for expenditure to be out of control, he says.

He says policy decisions taken in December could have a significant effect on state expenditure and make it difficult to stay within the budget. 

Fox says it is disappointing that government has postponed the targeted date for the reduction of debt owing to weaker than expected growth. 

He says government’s ability to keep its debt down had been one of its strong points. 

In January it had already contributed to Fitch altering South Africa’s outlook to negative. 

It’s a source of concern for all three rating agencies that the Finance Minister has less and less room to manoeuvre owing to the economic downturn.

- For business news in Afrikaans, head to www.sake24.com
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