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Cape Town - South Africa has plans in place to ignite growth in order to avert a ratings downgrade in the next six months, according to National Treasury as economists caution we aren't out of the woods yet.
South Africa has dodged the junk bullet after S&P Global kept the foreign currency rating one notch above sub investment grade, but lowered the long-term local currency ratings.
READ: Junk breather for SA, but S&P lowers local currency rating
Speaking to Fin24 by phone, Lebogang Madiba, director of country risk at National Treasury, said in the next six months National Treasury will continue its efforts to bring about reform and to boost economic growth in South Africa.
She said earlier in the year, National Treasury said it had plans in place to ignite growth. “In the next six months we’ll continue to demonstrate that we can implement these reforms to turn growth around."
Madiba said that the private sector has come on board and that investment is expected to pick up. "The fact that there is collaboration should also improve confidence. Those are the critical measures to improve growth.”
READ: Rand rallies as SA dodges junk bullet
She added that it’s no small feat that National Treasury managed to keep fiscal policy in tact, despite low economic growth and revenue uncertainty. “Our track record speaks for itself. We haven’t derailed our spending and we’re happy to say fiscal policy is credible.”
National Treasury wasn’t too concerned about the fact that S&P downgraded South Africa’s local currency rating to BBB from BBB+ previously.
“The concern of S&P is that our financial risk is increasing and we continue to fund largely on our local currency market,” Madiba explained.
“If you look at the concentration there you’ll see a large percentage of our foreign investors are buying into our rand paper. So that is a concern that the risk is still there, but the rating (of BBB) is still two notches above sub-investment grade,” she said.
READ: Treasury highlights 11 points from S&P's review
Following the announcement by S&P on Friday, National Treasury said in a statement that South Africans working together can achieve remarkable outcomes.
"Jointly with business, labour and the civil society, government remains committed in improving investor and consumer confidence through fast-tracking the implementation of the structural reforms on growth."
Treasury said that government policy continues despite rising political noise.
The latest announcement by the S&P means that all three rating agencies, including Moody’s and Fitch, have retained South Africa in an investment grade.
"Government would like to thank all the stakeholders whose efforts ensured such a positive result. The work remains, but together, we will continue to work hard to build a foundation for faster growth."
SA not out of the woods yet
Christie Viljoen, an economist at KPMG, told Fin24 he didn't anticipate a cut to sub-investment grade.
“I expected that South Africa wouldn’t be downgraded, although it is a pity that the local currency rating dropped one notch to BBB,” he said.
However, South Africa is not out of the woods yet. “I don’t think the political environment is going to improve anytime soon, which means a downgrade to junk status is just a matter of time.”
Jeff Schultz, analyst at the multinational bank BNP Paribas, told Fin24 that S&P’s decision to downgrade domestic currency rating was “to be expected”.
READ: S&P's ratings decision a partial victory, says Montalto
“But I think it is unlikely that markets will move as a result of this,” he added.
According to Schultz, the decision to lower the local currency rating, however should serve as a warning to policymakers to get their house in order.
“We’ve dodged the bullet this time around, but unless government reforms our mineral sector, the labour market and parastatals, a downgrade could definitely be in store when the next ratings review takes place in June 2017,” Schultz said.
FULL S&P STATEMENT: SA survives junk hurdle
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