S&P Keeps South African Credit Rating One Level Above Junk

Johannesburg, South Africa, Capital Markets in  Africa: South Africa’s credit rating was kept unchanged by S&P Global Ratings, giving the nation a reprieve from a junk assessment, even as it warned it could lower the rating if the economy doesn’t recover.

The foreign-currency rating was kept at BBB-, one level above junk, and the local-currency rating was affirmed at BBB+, S&P said in a statement on Friday. The outlook on the rating was kept negative. The rating affirmation keeps South Africa on the same level as India and Italy.

“South Africa’s weak economic growth, relative to that of peers in similar wealth categories, continues to be hurt by a combination of factors,” S&P said. The negative outlook signals “that we could lower our ratings on South Africa this year or next if policy measures do not turn the economy around.”

While the nation maintained its investment-grade credit rating for now, economic growth that is set to slow to below 1 percent this year, the lowest rate since the 2009 recession, according to government and central bank estimates, will keep pressure on the debt assessment. A downgrade to junk for Africa’s most-industrialized economy could prompt forced selling by some funds that are prevented by their mandate from owning junk-rated securities.

“It doesn’t mean we are out the woods yet,” Johan Rossouw, group economist at Vunani Securities Ltd., said by phone from Cape Town. “They probably took a wait and see approach with regards to the mini-budget coming up in October and they will probably then reassess.”

Finance Minister Pravin Gordhan pledged in his February budget to narrow the fiscal deficit to 2.4 percent of GDP by 2019, from 3.9 percent last year, and limit gross debt to 50.5 percent of GDP in three years by reining in spending and increasing taxes.

“Government is aware that the next six months are critical and there is a need to step
up the implementation,” of measures too boost the economy, the Treasury said in an e-mailed statement on Friday. “The benefit of this decision is that South Africa is given more time to demonstrate further concrete implementation of reforms that are underway.”

Gordhan has met with business and labor leaders and investors since February to come up with measures to boost growth and improve sentiment. Gordhan was reappointed in December to the position he held from 2009 until 2014 after business and ruling party leaders forced President Jacob Zuma to backtrack on a decision to replace former finance minister Nhlanhla Nene with a little-known lawmaker.

The rand gained 3.1 percent to 15.1036 per dollar as of 5:59 p.m. in Johannesburg. Yields on rand-denominated government bonds due December 2016 fell 14 basis points to 9.17 percent.

Moody’s Investors Service kept its assessment of Africa’s most industrialized economy’s creditworthiness at two levels above junk last month, after putting it on review for a downgrade. Fitch Ratings Ltd. has reviewed its BBB- rating, on which it has a stable outlook, in recent weeks and has not said when it will publish the results of its analysis.

Source: Bloomberg Business News