Treasury: Govt working hard to reclaim investment grade ratings

Cape Town - The government's key focus is to safeguard confidence and reclaim South Africa's investment grade ratings, said Treasury after S&P Global Ratings kept the country's ratings unchanged.

Treasury on Friday welcomed S&P's decision to keep South Africa’s long term local currency debt ratings of ‘BBB-‘ at investment grade. The long-term foreign currency rating is still on junk status at ‘BB+’, with a  negative outlook.

READ: S&P keeps rating at BB+

"This is about the best outcome for a re-rating that South Africa could have hoped for under current depressed economic and political conditions," Professor Jannie Rossouw, head of the school of economic and business sciences at Wits University, told Fin24.

"It should be remembered that there is considerable scope for further downgrades within junk status. Given the current political turmoil, South Africa can slip deeper into junk status," he warned.

Rossouw said this raises the question of a South African recovery back to investment grade.

A government of national healing?

"In my view South Africa will need what I call 'a government of national healing' to restore the publics confidence in institutions of government. But our immediate challenge is to survive the Zuma administration without further damage to the economy."

In April, the announcement by S&P to downgrade the investment status on foreign denominated debt related to R263bn – roughly 10% of government total debt that is now sub-investment grade. Domestic debt, a total of R2.2 trillion, remains on the edge of investment grade.

FULL S&P STATEMENT: SA survives ratings downgrade

"We consider that political risks will remain elevated this year, which could distract from economic growth-enhancing priorities, slow the pace of fiscal consolidation, and weigh on investor and consumer confidence, more than we currently project," said S&P.

The ratings agency added that political risks will remain high at least for the remainder of the year, in the run-up to the African National Congress's elective conference to be held in December 2017.

"In our view, the policy agenda is at increased risk of being overshadowed by political infighting. We believe the current political environment could result in the private sector delaying business investment decisions, thereby restraining GDP growth," it said.

"Nevertheless, we believe growth will rebound from the paltry 0.3% of GDP in 2016 to 1% in 2017 and average 1.5% in 2017-2020, thanks to an improvement in agriculture output after a drought and improved terms of trade," said S&P, which estimate GDP per capita at US$6.000 in 2017.

Treasury said it noted the affirmation of the long-term foreign currency junk rating and the negative outlook on the ratings.

Guided by the Constitution

"While government agrees with S&P that the pace of economic growth is slow and as such poses risks to fiscal consolidation and rising contingent liabilities, the fiscal policy stance continues to be guided by chapter 13 of the Constitution. It states that while there is promotion of efforts aimed at economic development, good governance, social progress and rising standard of living for all South Africans, there must also be transparency, accountability and sound financial controls in the management of public finances."

Treasury said sustainable fiscal policy and efforts to tackle sources of low growth are critical. Improvement in policy design, finalisation of key policies and coordination remain critical for boosting confidence and economic growth, it added.

"Government is currently re-engaging with the private sector to make sure that the joint work of government, business, labour and the civil society continues and that the pledges made thus far are fulfilled," Treasury said.

It pointed out that the National Development Plan continues to be the anchor policy of government providing greater policy certainty.