SA walking ratings tightrope

Jan 27 2016 17:59
Carin Smith

Cape Town - Ratings agency Standard and Poor's said it could lower South Africa's ratings if gross domestic product (GDP) growth does not improve in line with its current expectations, or if state-owned enterprises require higher government support than it currently expects.

Its ratings outlook on South Africa still remains negative, according to a report by Standard and Poor's on ratings trends for 2016.

The agency said it could also lower the ratings if external imbalances increase, or funding for SA's current account or fiscal deficits becomes less readily available. A reduction in fiscal flexibility could also lead the agency to lower the local currency ratings, potentially by more than one notch.

"We could revise the outlook back to stable if we observe policy implementation leading to improving business confidence and increasing private sector investment, and ultimately contributing to higher GDP growth," stated Standard and Poor's.

According to the ratings agency, the negative outlook for SA reflects its view that GDP growth might be lower than it currently expects. This is, among others, due to "persistent" electricity shortages, continued weak business confidence, or the possibility of labour disputes escalating again.

The outlook also reflects Standard and Poor's view that fiscal flexibility might reduce owing to contingency risks from state-owned entities with weak balance sheets.

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