SA's rating affirmed but negative outlook remains

South Africa’s sovereign rating was affirmed by ratings agency Standard & Poors (S&P) on Wednesday.

The affirmation reflected South Africa’s prudent macro-economic policies, a moderate debt burden, and stable political institutions.

S&P added that President Jacob Zuma’s May 2009 Cabinet appointments lent credence to the expectation that policy changes would not affect the government’s macro-economic approach.

The outlook, however, remained negative.

This was due to, among other things, severe structural socio-economic weaknesses, S&P said.

The ratings agency said South Africa’s recession would heighten the strain on the collection of taxes and government spending would keep the current account gap high.

The ratings agency anticipated a gross domestic product (GDP) contraction of at least 1,5% in 2009, and growth below trend in 2010, increasing the downside risks to fiscal outturns.

“South Africa’s main rating vulnerabilities, however, continue to relate to the volatile financing of its current account deficit,” S&P noted.

In line with its expectation of a GDP contraction, it forecast a tangible reduction in the current account deficit in 2009, but said the public sector investment push would keep it relatively high, at 5,4% of GDP from 7,4% in 2008.

In response, the national Treasury said in a statement that it welcomed the rating, “particularly in the current economic climate where global ratings are dominated by rating downgrades”.

The Treasury added that the affirmation of South Africa’s rating reflected confidence in its credit position and future policy direction, “thanks in large part to a record of prudent execution of macroeconomic policies”.

It said that the convergence of monetary and fiscal policy, as reflected in the recent interest rate cuts and fiscal expansion, was expected “to soften the impact of the global economic crisis, while the massive infrastructure investment programme will ensure that South Africa’s economy grows even faster when the global economic cycle turns”.—Sapa

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