Share

How S&P is making its assessment of SA's credit rating

It would be a big move for Standard & Poor’s (S&P) to put a hold on South Africa’s credit rating on 3 June, according to Investec economist Nazmeera Moola.

Moola and Peter Kent, co-heads of fixed income at Investec, unpacked the criteria the rating agency will be using to assess SA during a press briefing on Thursday, 26 May.

A hold would be “hawkish”, said Moola, explaining that S&P may only do this to allow time for fiscal consolidation to play out, while keeping SA on a negative outlook.

After being rated below investment grade, some countries have taken over a decade to recover, while others have bounced back in less than 18 months. But there fewer examples of the latter, Moola added.

According to Moola and Kent, S&P will be looking at the following five issues before reaching a decision about SA’s credit rating:

Institutional assessment: S&P will look at policy coherence and consistency. SA’s strengths lie in the transparency of its societal structures including its media, statistical agencies and policy-making environments, said Moola. However, the country’s policy coherence across the board is of concern, she said. This reflects government departments' ability to work together to create growth. The weak rand, weak tourism numbers due to the visa debacle last year, as well as education and labour law issues reflect incoherent policy, she said.

The events surrounding National Treasury since 9 December 2015 have raised a few questions. But they are not “big” enough to warrant a downgrade to the score, says Kent. However, if finance minister Pravin Gordhan were to be replaced again, then that would speak to a lack of policy coherence, added Moola.

Economic assessment: This is the most important measure for S&P, said Moola, adding that it is also the area in which we are scoring poorest. The rating agency will look at per capita GDP, which is a serious concern in SA, she said. The growth realised in 2015 was 1.3%, which was much lower than the forecast 3.8%. Similarly, 2016’s growth, revised to 0.6%, is nowhere near the forecast 3.4%. This issue is being exacerbated by slowing global growth, and local problems such as electricity constraints, labour unrest, the political climate and policy incoherence, she said.

External assessment: Global factors to consider include the US Fed hiking interest rates later in June/July as well as China’s slowing economy and the slump in commodity prices. These factors impact all emerging markets, according to Kent.

Fiscal and debt burden assessment: Gordhan’s Budget in February highlighted steps to improve fiscal consolidation, said Moola. Given data collected over the past two months, SA is on track, but it is still early days, she warned. A budgetary surplus has been realised due to government cutting down on the expected growth of compensation, as it has managed to keep a lock on wage increases with growth in the number of government employees remaining flat.

Monetary assessment: This is a clear strength for SA, she said: “The Reserve Bank is the single best score we have from S&P.” The independence of the Reserve Bank, the clarity of the inflation target as well as the Monetary Policy Committee’s (MPC’s) commitment to sticking to the target are factors that have counted in SA’s favour.  

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
19.07
-0.8%
Rand - Pound
24.01
-0.5%
Rand - Euro
20.55
-0.4%
Rand - Aus dollar
12.37
-0.1%
Rand - Yen
0.13
-0.8%
Platinum
890.97
-0.7%
Palladium
988.99
-1.3%
Gold
2,196.11
+0.1%
Silver
24.43
-0.9%
Brent Crude
86.09
-0.2%
Top 40
67,857
+0.3%
All Share
74,039
+0.2%
Resource 10
56,172
+0.9%
Industrial 25
103,559
+0.3%
Financial 15
16,472
-0.3%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders