Picture: Alessandro Garofalo
Picture: Alessandro Garofalo

Fitch follows S&P's lead

By IOL Reporter Time of article published Jun 8, 2016

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Johannesburg - Fitch has followed in the footsteps of S&P Global Ratings and Moody’s and not lowered its ratings for the country.

READ ALSO: Gloomy sentiment points to SA recession

Last Friday, S&P affirmed SA at a notch before junk level, but warned that the country only had six months to improve the economic outlook before its next decision.

This morning, finance minister Pravin Gordhan said he was crossing his fingers ahead of the ratings, and noted that agencies now wanted action and not talk.

In its statement issued on Wednesday, Fitch said its rating reflects low trend gross domestic product growth, significant fiscal and external deficits, and high debt levels, which are balanced by strong policy institutions, deep local capital markets and a favourable government debt structure.

“Political risk has increased since the previous rating review in December 2015, although it is not out of line with 'BBB' peers. The dismissal of two finance ministers in a week in December, and subsequent tensions between the new finance minister Pravin Gordhan and other parts of the government have raised questions about the commitment of the government to sustained fiscal consolidation and prudent governance of state-owned enterprises,” it says.

READ ALSO: Zuma-Gordhan talks focused on SOEs

The ratings agency also noted President Jacob Zuma has become increasingly embattled following the Constitutional Court ruling that he should repay some public funds used to refurbish his Nkandla residence and the Gauteng high court's ruling that the previous suspension of a 2009 corruption case against Zuma was irrational.

“Nevertheless, institutions have proved robust.”

The agency, which recently warned SA against quick election wins ahead of the August 3 local government elections, adds it expects the ruling African National Congress (ANC) to lose some support in the elections.

“Fitch views political risks mainly in terms of the impact on the economy and public finances. Fitch's base case is that the government remains committed to fiscal objectives set out in February's budget, but political tensions increase risks to progress on fiscal consolidation and growth-enhancing measures, and raise the chances of policy missteps.”

READ ALSO: Gordhan 'crossing his fingers' for Fitch

It adds gross domestic product growth will likely come in at 0.7 percent this year. Figures released on Wednesday by Statistics SA show the economy dropped to negative 1.2 percent in the first quarter from 0.4 percent in the last quarter of 2015.

Two consecutive quarters of negative growth would mean a technical recession.

“Growth is held back by constrained electricity supply, concerns about the deteriorating investment climate and fractious labour relations,” says Fitch, although conceding that government has made progress in addressing power supply problems.

It adds external finances remain a weakness, fiscal deficits have remained high, with a deficit of 3.9 percent of GDP in the year to March and inflation hit 7 percent in February before slowing somewhat.

It warned on issues that would see SA downgraded.


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