We need to change economic outlook fast - Nedbank


Cape Town - Nedbank said on Saturday that SA has a "very short window to change the outlook for the economy" following Friday's late night downgrade of SA's long-term local currency debt to junk by S&P Global Ratings

“We urgently need to accelerate economic growth, which will require policy clarity, structural reforms and restored faith in governance in order to lead a recovery of consumer and business confidence,” said Nedbank's group CEO Mike Brown in a statement

Late on Friday evening S&P Global downgraded South Africa's long-term local currency rating to 'BB+' - or junk - with a stable outlook, while rival ratings agency Moody's placed the country on review to be downgraded.

On Thursday, meanwhile, the third major ratings agency Fitch affirmed SA's long-term foreign and local currency debt ratings at junk with a stable outlook.

This means that, of the three major ratings agencies, only Moody's has kept SA's sovereign debt at investment grade.

Moody's said it would reassess SA's debt after the ANC elective conference in December, and the main budget in February next year. 

READ: S&P Global downgrades SA to junk, Moody's places SA on downgrade review

"We note that both agencies [S&P and Moody's] commented on the importance of maintaining the integrity of institutions like the South African Reserve Bank and National Treasury, which is critical to ensuring that the financial sector is resilient and capable of supporting a recovery of the economy," said Nedbank in its statement. 

"However, despite this resilience, the downgrade is a blow for South Africa and it could and should have been avoided. It will become more expensive for government and private sector to raise funding. Foreign investor demand for South African debt will be weakened, which will be negative for the exchange rate. There will also be upward pressure on inflation and domestic interest rates."

The rand, which was trading at R13.90 to the US dollar before S&P's announcment, has fallen to R14.15/$, a drop of 25 cents. 

READ: Downgrade a 'significant blow' - CEO Initiative

Brown said that, while Nedbank was "well positioned to manage the impacts of ratings downgrades", they represented "another setback to our country, and as a result all South Africans will on average be poorer".

"Economic growth will be lower and unemployment is expected to be higher. It will be more expensive for government to borrow money, meaning that more of our resources will be spent on servicing debt and less available for important areas like infrastructure, education, healthcare, housing and social needs.”

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