https://www.engineeringnews.co.za

SA ratings downgrade ‘imminent’ – Standard Bank

SA ratings downgrade ‘imminent’ – Standard Bank

Photo by reuters

5th June 2014

By: Natalie Greve

Creamer Media Contributing Editor Online

  

Font size: - +

A downgrade of South Africa’s rating by agencies such as Moody’s, Standard & Poors (S&P) and Fitch was “imminent”, as the country continues to battle growth headwinds while shouldering a hefty debt burden, Standard Bank currency strategist Yvette Babb told a media briefing on Thursday.

“This prediction is centered around the country’s poor growth forecast – which we put at 2.2% year-on-year – and, from a policy perspective, it is unlikely that we’ll see a change in the twin deficits,” she said, in reference to South Africa’s current account and budget account deficits.

“[Of all African States], South Africa is probably at the greatest risk of a downgrade next week, as its fiscal deficit has remained elevated since 2009.”

Ratings agency Moody's currently had a Baa1 rating for South Africa, coupled with a “negative” outlook, while S&P had issued a BBB rating, also predicting a “negative” future ratings movement.

Fitch had rated the country BB-, with a “negative” outlook. The agencies were expected to announce their reviewed ratings on June 13.

Babb's bearish comments came despite the country’s current account deficit narrowing to a surprising 5.1% of gross domestic product (GDP) in the fourth quarter of 2013.

However, rising fiscal deficits on the continent were driving debt levels higher, Babbs added, noting that a strengthening trend in Africa – to which South Africa was not immune – was the use of external or foreign finances to “front” infrastructure development.

She added that a decline in support from development partners, or even the threat thereof, coupled with waning investor confidence, posed a further challenge for fiscal and external balances.

Moreover, the International Monetary Fund had recently warned African countries to be cautious of not allowing the pace of infrastructure development to exceed that of available domestic investment.

“We can’t simply expect external finances to front local development; the accumulation of debt must be done in a sustainable way,” Babb cautioned.

HEAVY LIFTING

Further elaborating on South Africa’s prospects for the year ahead, Standard Bank noted in a recent African markets report that it expected investment to continue to make a positive contribution to GDP growth this year, adding that the country needed to move “well above” the “lackluster” 4.8% year-on-year investment growth of the fourth quarter of last year.

“In particular, we need to see private sector investment doing more of the heavy lifting,” the bank stated.

The fiscal deficit was expected to improve to R153.1-billion, or 4% of GDP, in 2014/15, R150.3-billion, or 3.6% of GDP, in 2015/16 and R126.9-billion, or 2.8% of GDP, in 2016/17.

“We remain reasonably confident that the government will be able to deliver the gradual consolidation outlined in the Medium-Term Expenditure Framework. While recognising that downside risks to growth pose some cyclical risks to revenues, official estimates tend to have a conservative bias, and there might be some room for discretionary tightening,” read the report.

Looking to monetary policy, as expected by Standard Bank, the South African Reserve Bank again left interest rates on hold at its May Monetary Policy Committee meeting.

The bank said the forward-rate agreements had now priced out a significant portion of any monetary tightening that had been discounted at the height of the rand sell-off at the end of January.

“However, if the rand continues its rebound, we suspect that policy will be on hold for the rest of the year and tightening will only continue once there are signs of more robust domestic demand,” it held.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

Comments

Array

Showroom

WearCheck
WearCheck

Leading condition monitoring specialists, WearCheck, help boost machinery lifespan and reduce catastrophic component failure through the scientific...

VISIT SHOWROOM 
Universal Storage Systems (SA)
Universal Storage Systems (SA)

South African leader in Steel -Racking, -Shelving, and -Mezzanine flooring. Universal has innovated an approach which encompasses conceptualising,...

VISIT SHOWROOM 

Latest Multimedia

sponsored by

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION







sq:0.068 0.12s - 139pq - 4rq
Subscribe Now