Johannesburg - Although Fitch on Thursday joined the other
two major international ratings agencies in cutting SA’s sovereign credit
rating‚ its investment rating was not under threat‚ according to analysts.
Moody’s downgraded SA in late September 2012 and Standard
& Poor’s (S&P) in mid-October 2012.
The investment rating meant for instance that SA government
bonds are included in the World Government Bond Index (WGBI)‚ which last year
resulted in foreigners buying a net R85.373bn worth of SA bonds.
Without this capital inflow to finance a large current
account deficit‚ the rand would be much weaker‚ inflation higher and economic
conditions more stressed.
Absa Capital said that slower economic growth – delivered in
part by the continuing difficult global environment‚ but also as SA struggles
for competitiveness – cast a shadow over public finances and on employment and
“The Fitch announcement does not threaten SA’s inclusion in
the benchmark indices‚” Absa Capital said.
The benchmark R186 bond closed at a record low yield of
7.09% on Thursday before the Fitch announcement.
The R186 yield closed at 7.265% at the end of 2012 from
8.4700% at the end of 2011. The main reason for foreign demand in 2012 was the
decision by Citibank to include SA government bonds in the WGBI.
This was announced on April 17 2012. On April 16‚ the R186
yield closed at 8.42%.
Statistics SA in November reported that third quarter real
gross domestic product growth slowed to 1.2% quarter on quarter (q/q)
seasonally adjusted and annualised in the third quarter from 3.4% in the second
quarter‚ while real retail sales growth slowed to 1.0% year on year (y/y) in
October from 4.7% y/y in September and 6.7% y/y in August.
The National Treasury said last month that personal income
tax collections‚ which is the largest individual component of tax revenue‚
slowed to a 3.0% y/y increase in November from an eight month average of 9.6%
y/y‚ while the October 2012 forecast was for a 14.2% increase in the full
fiscal year that ends in March 2013.
The second largest component‚ namely value added tax (VAT)
collections‚ had a 1.4% y/y decline in November‚ although its eight month
average of 11.8% is slightly above the forecast of 9.8% for the full fiscal
RMB said that a rating upgrade by any of the agencies
remained a tall order as it would require much stronger growth‚ a notable
decline in the budget and current account deficits and structural reforms‚
particularly in the labour market.
“The investment grade rating is supported by the robustness
of the banking system‚ the liquidity in the local bond market‚ the floating
exchange rate and flexible inflation-targeting regime‚” RMB said.
The National Treasury said the government was aware of the
challenges of poverty and unemployment the country is facing.
“The budget framework set out in the Medium Term Budget
Policy Statement demonstrates government’s unambiguous commitment to
maintaining debt and expenditure growth within sustainable levels. These
principles will continue to underpin South Africa’s fiscal stance‚” the Treasury
said in its reaction to the Fitch downgrade.
Nomura International was worried that many of the negative
rating sensitivities that Fitch highlights come true - in particular that there
is a failure to generate faster employment growth‚ structural reforms remain
slow and so there is little improvement in competitiveness.
“The mining tax uncertainty that remains after Mangaung is
also seen as a key negative by the agency‚” Peter Attard Montalto said.
“The impact of this move on markets is likely to be minimal‚
however‚ given we are not at a benchmark or real money mandate threshold‚” he
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