SA on alert ahead of next ratings call by S&P

Cape Town – South Africa is on alert as S&P Global Ratings will on Friday provide an update on the country’s credit rating.

This follows an update by Fitch Ratings on Thursday, in which it said the local- and foreign-currency ratings were affirmed at BB+ with a stable outlook.

The ratings action following S&P and Fitch’s decision to cut their assessments of South Africa’s foreign-currency debt to the highest junk level in early April after a late-night cabinet reshuffle in which President Jacob Zuma replaced Pravin Gordhan as finance minister with Malusi Gigaba, a former home affairs minister.

Another rating action is expected soon by Moody’s Investors Service. While it still rates South Africa’s foreign-currency debt at two levels above junk, the company put its assessment on review for a downgrade in April and hasn’t published the outcome yet.

The Treasury is hoping for a positive outlook from both Moody’s and S&P, said Mampho Modise, the department’s chief director for strategy and risk management. “We have shown signs of progress in reform implementation,” she said by phone.

South Africa had enjoyed investment-grade standing at all three major ratings companies since at least 2000.

Gigaba on board

Gigaba has committed to fiscal discipline in an attempt to meet the budget-deficit target of 3.1% of GDP in the year through March. Fitch estimates a gap of 3.3%, saying budget cuts it anticipates the National Treasury will make later this year won’t be sufficient to offset a tax shortfall.

“Fiscal consolidation remains firmly on track,” the National Treasury said in an emailed statement after Fitch’s decision. Gigaba “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.”

South Africa has R477.7bn of guarantees available for public institutions, R308.3bn of which has been used, according to the February budget. Eskom is the biggest recipient, using R218.2bn of the R350bn available to it.

“Sizeable contingent liabilities and deteriorating governance” at state-owned companies weigh down the rating, Fitch said.

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