Johannesburg - The much-awaited ratings review from S&P Global Ratings will be announced on Friday while Fitch has not given a date for its next rating decision, but Finance Minister Pravin Gordhan said in a speech in Parliament on Thursday that the review was expected on June 8.
The rand fell against the dollar on Friday as credit ratings downgrade fears weighed on sentiment, coupled with subdued risk appetite globally as investors prepared for a likely hike in US interest rates.
Read: S&P cuts SA's growth forecast
At 5pm on Friday, the rand was bid at R15.6609 to the dollar, 3.28c weaker than at the same time on Thursday.
“Local focus has been firmly on the impending announcements from the ratings agencies,” Nedbank Capital analysts Mohammed Nalla and Reezwana Sumad said.
“The rand has thus far failed to extend any gains below the R15.5000 level. Markets have remained cautious ahead of the aforementioned rate decisions,” they said.
The review announcements have already set off panic buttons in the Presidency, which, in a clear attempt to assuage the rating agencies, on Friday said it condemned the toxic narrative that was being promoted in the media that insinuated President Jacob Zuma was engaged in a certain “war” with Gordhan.
Government ‘war’
The Presidency’s statement said the narrative was being peddled in local and foreign media and some sections of business that Zuma was fighting Gordhan and the Treasury.
“The purpose of the said ‘war’ was apparently the president wishes to take control of the National Treasury,” it said.
The Presidency added: “It should be noted that the president controls all government departments, including the National Treasury, as the head of government, and by virtue of the fact he appoints ministers and they report to him.
“All government departments also report to the president. It is therefore absurd to say that the president would be engaged in a struggle to control a government department that he already controls, and also when he actually controls the whole government.”
Economists have said the clear rift between Gordhan and other organs of state, and accusations of state capture, along with the Constitutional Court’s ruling that Zuma flouted the country’s constitution, have harmed both investor sentiment and South Africa’s image.
Fighting a proxy war for Gordhan, Treasury director-general Lungisa Fezile said on Friday that South Africa had to reduce the “noise” in its politics (to) attract investment and improve confidence.
“We have to reduce the amount of noise in our political system, especially as it pertains to various policies that are under consideration so that we can improve confidence and make our country an attractive investment destination.”
Gordhan said both Fitch and S&P engaged the Treasury two weeks ago, with S&P also visiting businesses and other stakeholders.
“Beyond the June date, the next round of reviews will be in December. We will have to work harder to demonstrate even more concrete outcomes by the time of the December reviews,” he said.
In an interview with the Financial Mail last week, Gordhan said it was still unclear whether South Africa’s debt could be downgraded by S&P and Fitch.
“Look, we were able to explain everything they wanted explained. In fiscal terms, we have a credible story, and when it comes to building confidence, we have a credible story. With enough work, we can also turn the corner as far as growth is concerned,” he said.
Both S&P and Fitch have South Africa one notch above sub-investment grade.
Moody’s earlier this month kept South Africa’s sovereign rating on hold at Baa2, with a negative outlook, two notches above junk.
However, the risk of the other two agencies downgrading South Africa remains high as growth is limping.
Standard Bank chief economist Goolam Ballim said last week he estimated the South African economy to contract by 0.3 percent if the credit rating was cut to junk, and the economy to expand by 1.1 percent next year in the event of a downgrade.
Ballim said the rating of sub-investment grade would usher in a recession, with at least 200 000 jobs at risk and 600 000 dependents blighted.
Ballim said almost a quarter of the country’s economy is already in contracting terrain.
“I have the hope that S&P leans heavily toward a qualitative assessment and provides South Africa with a reprieve. It’s both probable and positive. But any sensibly-minded firm should prepare for a downgrade,” he said.
Banks downgrade
On Friday, Moody’s lowered its outlook for the South African banking system to negative from stable, citing deteriorating operating conditions over the next 18 months, sending shares across the sector lower.
It said it expected the banking system’s non-performing loan ratio to rise to about 4 percent by the end of next year from 3.1 percent last December due to pressure on corporates and consumers from rising interest rates and inflation.
Fitch said last Thursday that South Africa’s authorities should avoid populist measures, such as introducing a minimum wage in the run-up to the local elections.
* With additional reporting by Reuters
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