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Fitch likely to keep SA's sovereign credit rating unchanged - economist

Jun 13 2018 20:30
Sibongile Khumalo

Global ratings agency Fitch is likely to keep South Africa's credit rating unchanged at BB+ with a stable outlook when they announce its review later this week, an economist at Old Mutual Investment has said.

According to Johann Els, Head of Economic Research at Old Mutual Investment, the economy is likely to recovery from a 2.2 % contraction seen in the first quarter, boosted by factors such as improved budget position, a better outlook for state-owned enterprises and a stronger rand compared to 2017.

"South Africa will still see a recovery and, as such, Fitch is likely to keep their rating unchanged at BB+ with a stable outlook, when they announce their review expected later this week," said Els in a report.

Fitch first downgraded South Africa’s rating to "BB+" - commonly known as "junk" in April 2017.

READ: S&P keeps SA sovereign credit rating unchanged

Last month, Standard & Poor’s affirmed the country’s sovereign rating at "BB+" rating and kept the foreign-currency debt unchanged at "BB", the second grade of junk status.

"While the recent first quarter GDP numbers came in negative, economic activity usually recovers after such a weak period, especially if an economy is in the uptrend that I believe we’re currently in," Els added.

Els stated that improved the consumer and business confidence and the Reserve Bank’s leading indicator index also pointed to a continued economic recovery.

"Even if we don’t see the 2%+ GDP growth that we previously expected, 1.8% is better than the 1.3% we saw in 2017," he said.

The recent decline in GDP growth came on the back of a wave of national optimism that came with the appointment of Cyril Ramaphosa as president in February.

Need for reforms

Ramaphosa has since announced appointed team of economic envoys tasked with attracting a target of $100bn investment over the next five years.

"Perhaps ‘Ramaphoria’ has been blown out of proportion as the real economic impact of South Africa’s new leadership will take some time to reflect in the numbers," explained Els.

"We need to build on this through reforms and programmes such as the president’s investment drive."

The IMF this week called for "bold reforms" to boost growth above the 2% per annum level, saying the country was unlikely to exceed 2% GDP growth over the medium term.

READ: SA needs 'bold reforms' to boost growth - IMF

The IMF team proposed a "bold reform agenda", including boosting the benefits of social grants by cutting down on intermediation costs, clarifying mining regulation to foster investment, and allocating broadband spectrum to the private sector to increase competition.

Mobile phone operators have over the years voiced concern over the slow process of releases broadband spectrum.

In an open letter to political leaders, including President Cyril Ramaphosa, the CEO of Telkom, Sipho Maseko, challenged the government to "release spectrum to unlock value and set the country on a trajectory to participate on the fourth industrial revolution."

"We must urgently discuss the digital economy, to that we can develop and distribute available resources to unlock benefits for all South Africans," said Maseko in a letter published on Sunday.

"The digital economy is now a major contributor to the gross domestic products of advances economies," he said.

Digital spectrum allows mobile operators to connect more people and roll out faster internet connectivity.

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fitch  |  s&p  |  old mutual  |  cyrial ramaphosa  |  credit ratings
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