S&P warns SA on twin deficits

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The Standard & Poor's building is seen in New York.

Johannesburg - Standard & Poor’s warned South Africa that deterioration in the nation’s current-account and fiscal deficits may prompt a downgrade in its credit rating as the company affirmed the country’s assessment and outlook.

“We could lower the ratings if external imbalances continue to increase, or funding for South Africa’s current-account or fiscal deficits becomes less available,” the credit-rating company said in a statement today.

The gap in the current account, the broadest measure in the trade of goods and services, exposes Africa’s largest economy to sudden shifts in capital flows triggered by an event such as the Federal Reserve deciding to taper its monetary stimulus, S&P said.

Slow economic growth, estimated by the central bank at 1.9 percent this year, may also increase pressure on the fiscal deficit, the company said.

South Africa relies on foreign portfolio flows into its stock and bond markets to fund a current-account deficit that increased to 6.8 percent of gross domestic product in the three months through September, according to the country’s statistics agency.

This compares with a 5.9 percent gap during the previous quarter.

S&P rates South Africa BBB, its second-lowest investment-grade assessment, the same level as Brazil, Russia and Colombia, with a negative outlook.

The rating opinion “did not take adequate account” of the progress made since the company downgraded South Africa in October 2012, the National Treasury said in an e-mailed statement today.

Fitch Ratings on December 18 affirmed South Africa’s rating at BBB, also its second-lowest investment grade, and kept the outlook stable.

This decision was “fair” as the government’s fiscal framework is aimed at boosting the economy and strengthening infrastructure development, the Treasury said in response. - Bloomberg News

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