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Cape Town - S&P’s decision late on Friday to keep South Africa’s sovereign credit rating unchanged is a positive outcome, but solid plans must be implemented to stimulate more inclusive economic growth, analysts say.
Thabi Leoka, economic strategist at Argon Asset Management, said S&P’s ratings move gives the country room to breathe. “It also gives us a chance to reflect and think of ways to get back to investment grade.”
READ: S&P keeps rating at BB+
Leoka said it counts in South Africa’s favour that S&P decided not to downgrade the local currency debt, as this would mean the country would lose out on investment from investors who are only allowed to invest in countries with investment grade.
S&P announced that it is keeping the long-term foreign currency sovereign credit rating at BB+ (sub-investment grade, or junk status), and a long-term local sovereign currency credit ratings of BBB- (investment grade), with a negative outlook.
READ: Treasury: Govt working hard to reclaim investment grade ratings
Leoka said it’s a concern if politics interferes with the policies adopted by government, as political risk was the reason why S&P downgraded South Africa in the first place.
“But S&P understands South African politics and can see the wood for the trees,” Leoka said. “Overall it is a positive outcome and a relief for us.”
A clear road map for reform
Dr Kenneth Creamer, economist from Wits University, told Fin24 that policy makers must work hard to help rescue the ailing economy.
"Despite the ongoing, very disturbing revelations about corruption seemingly centered mainly around some of South Africa's largest state owned companies, it is important that economic policy makers pull together to develop a clear road map to begin to reform the economy, insist on improved governance and stimulate more inclusive economic growth," he explained.
As part of this road map, firm plans should be put in place to help regain those aspects of South Africa's investment grade rating that have recently been lost, said Dr Creamer.
Dodging a bullet
David Maynier, Democratic Alliance spokesperson on finance however believed South Africa has dodged a bullet with the ratings affirmation.
“What this means is our long-term local currency debt, which forms 88.2% of our R2.2 trillion net debt, retains its investment-grade rating from S&P,” Maynier pointed out.
“However, despite S&P raised serious concerns about political infighting undermining economic growth and fiscal consolidation, which is reflected in their negative outlook for South Africa."
According to Maynier, the ratings decision confirms that the “civil war” within the ANC is “killing” the economy.
READ: S&P downgrades SA to junk status
On April 3, S&P downgraded South Africa’s sovereign credit rating to junk status, following President Jacob Zuma’s overnight Cabinet reshuffle three days earlier which saw the removal of Pravin Gordhan and Mcebisi Jonas from the finance ministry.
At the time, S&P said the reshuffle put policy certainty and fiscal and growth outcomes at risk. It also raised concern that contingent liabilities to the state are rising.
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