SA to know credit rating fate by year-end, says Fitch
SOUTH Africa will know by the end of the year whether it has received another sovereign credit rating downgrade.
Analysts from Fitch Ratings have been in South Africa for several days interviewing South African Reserve Bank and Treasury officials, private economists, political parties, national planning commissioners and Eskom executives.
In terms of new European Union (EU) regulations, credit rating agencies must file a credit report on each country they rate twice a year. That means Fitch has until December 31 to update its assessment of South Africa.
In January this year Fitch was the last of the three main rating agencies to reduce South Africa’s credit rating by one notch to BBB. But it kept South Africa on a "stable" outlook while the other two main rating agencies, Moody’s and Standard & Poor’s, which downgraded South Africa before last year’s Mangaung conference, have placed South Africa on a negative outlook.
The deterioration in South Africa’s growth prospects, a widening in the current account deficit, delayed fiscal consolidation and heightened political uncertainty associated with high unemployment, social inequality and strikes led Fitch to downgrade South Africa’s sovereign ratings.
At the time, Fitch also cited "rising corruption and worsening government effectiveness" for having constrained government’s ability to improve living standards and reduce unemployment rapidly. As a result, it noted, social and political tensions had increased.
"Nothing has changed in South Africa," said Richard Fox, head of Fitch sovereign ratings for the Middle East and Africa, speaking from London.
"Our sentiments are as we said in January: South Africa’s potential growth rate has been coming down since the global financial crisis and this is affecting public finances.
"The big question is how South Africa is going to raise growth to address the many social issues. We know the National Development Plan (NDP) is very good on diagnosis and the political parties have bought into it, but there’s been very little in the way of implementation."
The need to improve the business climate and reform education and the labour market had been on South Africa’s shopping list for a long time, said Fox, but rating agencies now wanted to see the actual implementation of this reform agenda.
A key question Fitch is pondering is whether the outcome of the 2014 election will result in an acceleration of structural reform. Another major unknown is how the country will be affected next year once the US Federal Reserve commences tapering its bond-buying programme.
The agency expects South Africa’s real gross domestic product (GDP) growth rate to accelerate moderately from 1.9% in 2013 to 2.8% in 2014, but has warned that South Africa is one of the most vulnerable economies in sub-Saharan Africa, along with Ghana, to the effects of Fed tapering.