PARLIAMENT - South African finance minister, Malusi Gigaba, said on Wednesday that he was bracing for a sovereign credit ratings review.
The rating agencies will be watching Gigaba's maiden medium-term budget policy statement (MTBPS) with anticipation after they warned that slow growth at struggling State firms heavily reliant on government bailouts posed significant risks to the country's ratings.
The MTBPS is government's plan that sets out the fiscal policy objectives and spending priorities over the next three-year expenditure period.
During a media briefing before the MTBPS presentation, Gigaba indicated that he was hopeful that the credit rating agencies would recognise the strides that the country was making to get out of the slow economic growth quagmire.
But Gigaba said that he would not predict the rating agencies' decision after the budget.
"We are going to have a conference with the ratings agencies later today after the presentation of the MTBPS in Parliament, and we will have further meetings with them next week and in the coming days. We wouldn't want to speculate on how they're going to react to our presentation, but we are going to talk very candidly with them on our challenges and how we are going to get ourselves out of the present challenges," Gigaba said.
"Out of every tough situation there are opportunities, and the South African economy does have those opportunities. It is in our hands to change the course that we are currently on. It requires that we change the pace and scale of structural reforms, in particular to deal with with niggling challenges at policy level such as and resolving the impasse surrounding the mining sector."
Fitch Ratings is the only ratings firm that has South Africa's local and foreign currency debt in sub-investment grade, while S&P Global has South Africa's foreign currency debt in junk, with local currency debt one notch above junk.
Moody's Investor Services has both South Africa's local and foreign currency debt one notch above junk. Moody’s and S&P are scheduled to review the country’s ratings on November 24.
South Africa slashed its projected gross domestic product (GDP) growth forecast for 2017 by almost half, from 1.3 percent to 0.7 percent, following a recession in the fourth quarter of 2016 and the first quarter of this year. Growth is subsequently expected to recover slowly, reaching 1.9 percent in 2020.
The National Treasury has generated three alternate scenarios quantifying some of the risks to the baseline economic forecast.
Two scenarios involve downgrades to the local currency debt by global ratings agencies.
In the third scenario, global growth improves by an annual average of 0.5 percentage points over the medium term and export commodity prices are five percent higher than the baseline. If that trajectory continues, Treasury expects growth to reach 1.4 percent in 2018 and 2.4 percent in 2020.
The International Monetary Fund (IMF) expects global growth to average 3.6 percent this year and 3.7 percent in 2018 as a result of recovery in demand and trade in Europe and Asia.