PIC warns of risk of further downgrades

Finance Minister Malusi Gigaba has laid out a 14-point programme to take the economy out of recession that includes the partial privatisation of SEOs.. Picture: Bongani Shilubane

Finance Minister Malusi Gigaba has laid out a 14-point programme to take the economy out of recession that includes the partial privatisation of SEOs.. Picture: Bongani Shilubane

Published Jul 25, 2017

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Parliament - The Public Investment Corporation (PIC) believes that South Africa remains at risk of further credit rating downgrades given sluggish growth and a lack of confidence in the economy, Finance Minister Malusi Gigaba said on Tuesday in reply to a written parliamentary question.

And it warned that while the listed equity index might be cushioned by diversification across sectors if the rand were to weaken due to further downgrades, a negative impact would be felt on listed fixed income assets, the minister said. 

Gigaba said the PIC had also warned that South Africa risked exclusion from the world government bond index if all credit ratings agencies were to downgrade the domestic credit rating to below investment grade.

Fitch has dropped the long-term local currency rating to junk status, while Moody's and S&P Global have kept their ratings to one notch above that level.

Gigaba said in the case of bond index exclusion, the PIC expected bond yields to spike at around 125 basis points higher than normal returns before stabilising at a rate of about 85 points higher. It also foresaw a high rate of rand volatility.

The PIC manages some R2 trillion in assets, including the investments of the Government Employees Pension Fund.

African News Agency

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