Johannesburg – Government has welcomed Standard & Poor’s decision to affirm the country’s current rating.
On Friday evening S&P’s affirmed SA’s sovereign debt rating at one notch above junk, giving the country some breathing space.
This is the second time a ratings agency has paused on downgrading SA’s rating after Moody’s last year left its rating unchanged at two levels above junk.
In a statement issued shortly after the announcement on Friday, National Treasury says the “benefit of this decision is that South Africa is given more time to demonstrate further concrete implementation of reforms that are underway aimed at achieving higher levels of inclusive growth and place public finances on a sustainable path.
“The rating outcome demonstrates that South Africans can unite, especially during difficult times, to achieve a common mission. In this regard, government thanks all social partners for their efforts towards achieving this positive outcome and urges our partners to continue its close working relationship with government over the period ahead.”
However, it noted S&P maintained the negative outlook on the rating, citing concerns about economic growth and warned it could lower the rating by year-end or next year if policy measures do not turn the economy around.
Alternatively, S&P could revise the outlook to stable if it observes policy implementation that leads to an improved business confidence environment and increased private sector investment and ultimately result in higher levels of growth.
“Government is aware that the next six months are critical and there is a need to step up the implementation of the 9-point plan and other measures to boost the economy.”
National Treasury says government, business and labour will collectively intensify efforts aimed at restoring confidence and boosting investment amongst local and international investors; unblocking obstacles to faster employment growth in key sectors; and undertaking fiscal, state-owned companies and regulatory reforms.
“United effort towards concrete delivery in these priorities will lay a solid foundation for all South Africans to break through, in a sustainable manner, the cycle of poverty, inequality and unemployment.”
Should South Africa have been downgraded to junk, encouraging foreign investment and securing loans on the international market would have become more difficult, placing further pressure on an economy that is slowing and is only expected to grow at less than a percent this year.
Earlier this week, Finance Minister Pravin Gordhan said the country had done all it could to avert a ratings downgrade and had been working with business to avoid such an eventuality.
Fitch has still to provide its assessment of the economy and will announce whether it will downgrade SA later this month. Fitch currently has SA a notch above junk status.
Some analysts and economists had expected SA’s rating to remain unchanged for now, with the country being given six months of breathing space.
The effect of S&P’s decision on the JSE will only be seen on Monday, as it was announced after most of the trade had ceased for the weekend. However, the rand could still move in response to the news over the weekend.
IOL