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Cape Town - If South Africa loses its investment grade rating on Friday, it could take seven years to regain investment status, according to KPMG economist Christie Viljoen.
READ: 10 things to know about SA ratings D-Day
Standard & Poor’s rating service will release its latest review of South Africa’s sovereign credit rating on Friday evening. In December last year, the agency assigned a grade rating of BBB- to the country – the lowest possible investment grade rating.
A credit rating downgrade would mean that South Africa would be regarded as junk status – a fate it would share with countries such as Turkey and Indonesia.
“Over the past three decades, 15 countries have seen their investment grade ratings revoked,” Viljoen said, “but were then over time able to regain the status.” It doesn’t happen overnight, though.
Countries such as Colombia, Croatia, Ireland, Thailand and Uruguay, which suffered similar fates, took on average seven years to re-graduate to investment status.
Wichard Cilliers, chief currency dealer at TreasuryOne, said South Africa has a better chance at avoiding a downgrade than expected earlier. “I believe S&P would rather take a wait-and-see approach and make the decision in December when they can gauge if the National Treasury has been able to keep the promises from Finance Minister Pravin Gordhan’s Budget Speech.”
Still a strong case for a downgrade
Analysts at NKC African Economics, however, are of the view that although some improvements have been made on the fiscal front since S&P’s December announcement, there remains a strong case for a ratings downgrade.
Herman van Papendorp, head of investment research and asset allocation at MMI Holdings, said although a downgrade couldn’t be ruled out, there’s a higher likelihood that S&P and Fitch at a later stage would assess South Africa’s financial realities against the mini budget in October this year.
“They’ll also watch developments on the domestic growth front before taking the big step of classifying South Africa’s debt as junk,” said Papendorp.
Aubrey Matshiqi, political analyst and research fellow at the Helen Suzman Foundation, told Fin24 that although there is the real risk of a ratings downgrade, it would probably not be as catastrophic as analysts make it out to be.
“I’m not certain though that junk status would be as calamitous as people say, as the markets have already factored in the possibility of a ratings downgrade to junk status.”
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A
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