Johannesburg - Finance Minister Pravin Gordhan has met ratings agencies as he continued his trail blitz and tries to calm investors’ concerns over the country’s economic outlook.
Gordhan yesterday confirmed that he had met the agencies on the sidelines of the International Monetary Fund (IMF) and World Bank spring meetings in Washington this weekend.
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He told Business Report that while the meeting with the agencies was on the margins, South Africa wanted to update investors on its economic revival programme.
“We have meetings scheduled with Standard & Poor’s (S&P) and Moody’s for today (yesterday) and those meetings are not about negotiating anything: it’s largely about responding to the information needs they have, that might help them,” Gordhan said.
“We’re living in a world which has a very high degree of uncertainty about, in particular, the incremental decline in growth in most countries and therefore global growth.”
Escalating inflation
Gordhan’s meeting with the agencies comes as the country awaits the outcome of the S&P and Fitch ratings review programmes next month and the escalating inflation outlook that last month breached the SA Reserve Bank’s 6 percent ceiling.
Statistics SA said inflation had hit 7 percent year on year in February compared with 6.2 percent in January – the highest rate since May 2009.
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The headline inflation breached the upper level of the Reserve Bank’s target range of 3 percent to 6 percent for the second time this year.
Core inflation, which excludes food, fuel and energy, edged up further to 5.7 percent from 5.6 percent in the previous month.
Last week the rand tested the R14.50 key resistance level against the US dollar, but battled to maintain its strength.
Investec economist Annabel Bishop said the release of Chinese economic growth data in line with expectations, and US inflation data below expectations, aided the domestic currency in its attempted break.
Bishop said weak US data and ongoing dovish Fed comments saw the rand pull back, but the possibility of a downgrade remained.
But she argued that the investment grade was likely to be maintained for this year.
“No downgrade to sub-investment grade this year is in our expected case, but forms a marker for our down case scenario,” Bishop said.
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“Markets may have slightly reduced their expectations of speculative grade for South Africa, which may have provided some underpin to the rand recently, along with risk-on into emerging market assets.
“On a cautionary note, should South Africa lose its investment grade status at its upcoming country reviews then the rand would likely see substantial weakness, moving back towards R17 to the dollar and then continuing towards R20 to the dollar.”
While South Africa has adopted a nine-point plan to invigorate growth and help appease the agencies, the country’s growth prospects are not promising, with the IMF now only forecasting 0.6 percent.
Gordhan said the drop in commodity prices, as well as the demand drop, had affected growth and had impacted on the fiscal space.
He said plans to revive the country’s ailing economy would play a significant part in changing the prospects for the sovereign credit rating, adding that government, labour and business were all committed to the goal.
“There’s a lot more focus on how to undertake structural reforms and the techniques that could be learnt from best-case studies around the world,” he said.
“In our case we would be looking at, for example, state-owned enterprises, the cost of doing business and the cost of living in South Africa – both of which are key elements of the National Development Plan.
“The question of strikes and the length of strikes and how they impact on productivity. Another element would be the spatial arrangements of our cities – which impacts on the quality of life and productivity of people and the costs of transport,” he said.
BUSINESS REPORT