2 minute read
9 Mar 2015
7:09 pm

No change in rating expected: S&P


No change was foreseen in South Africa's sovereign credit rating over the next 24 months, ratings agency Standard & Poor's (S&P) said on Monday.

Picture: Thinkstock

“The outlook is currently stable…We don’t really expect the rating to change over the next 24 months,” senior director for sovereign ratings Christian Esters told reporters in Johannesburg.

In June last year, S&P lowered South Africa’s long-term foreign currency sovereign credit rating to BBB- from BBB.

The next rating announcement was expected to take place in June.

Esters said the key strengths and weaknesses from a sovereign ratings perspective with regard to South Africa had not really changed fundamentally over the past few months.

“One of the strengths that really supports the rating is the strength of institutions in South Africa,” he said.

“We also think that the external position, so that means external debt and external assets, is still fairly strong, in fairly good shape despite current account deficit and despite external imbalances.”

Fiscal debt over gross domestic product (GDP) was still thought to be moderate, although an increasing trend could be seen.

“In relative terms debt will not grow at the same pace as it did over the past five or six years,” he said.

Weaknesses included external imbalances, the current account deficit, and the need to fund the current account deficit through portfolio flows which were potentially volatile. The growth outlook was also seen to be a negative factor.

“We also think other risk factors for the fiscal outlook include the public sector wage [negotiations] and possibly also the need to provide funding related to the electricity sector or government-related entities more broadly.”

He said the SA Reserve Bank’s independence and a free-floating currency were seen as positives, as it allowed the rand to adjust to external shocks and circumstances.

Earlier, S&P chief economist for Europe, Middle East, Africa, Jean Michel-Six, said South Africa’s inconsistent electricity supply would cost the country around 0.3 percent of GDP growth.

“We saw 4th quarter as a fairly pleasant surprise after a fairly disappointing 2014.

“We would estimate that the electricity drag, the shortages… could take about 0.3 percent off of the rate of growth of the economy this year.”

S&P estimated that GDP growth in South Africa for 2015 would be just over two percent.

Michel-Six suggested this figure would be between 2.2 to 2.5 percent, after the electricity supply effects were considered.

READ MORE: Power supply to cost SA GDP growth: S&P