Fitch rating is the next hurdle for South Africa

THE government, political parties and private sector players have applauded S&P Global Ratings’ decision to grant SA a reprieve and maintain its investment grade credit rating on Friday, but markets are now waiting to hear from rating agency Fitch, which may put SA on negative outlook this week.

The rand strengthened on news of S&P’s decision to affirm SA’s rating, gaining more than 3%, to close at R15.08 to the dollar when markets closed on Friday.

Yields on government long bonds fell 14 basis points to 9.17%, as investors priced in the reduced risk of a downgrade to subinvestment grade — "junk" status.

Although there is no official date for the Fitch announcement, Treasury spokeswoman Phumza Macanda said its information was that Fitch would announce the outcome of its ratings review on Wednesday, probably after the markets close.

Like S&P, Fitch has SA’s foreign currency rating at just one notch above subinvestment grade or "junk" status, after it downgraded it in December on concerns about SA’s weak growth performance and potential.

However, Fitch maintained a "stable" outlook on the rating — which could change to negative.

Nomura economist Peter Attard-Montalto believed there was a "moderately high" chance of a negative outlook.

In May, Moody’s Investors Service kept its assessment of SA’s creditworthiness at two levels above junk, after putting it on review for a downgrade

S&P, which is due to review SA’s rating again in December, said on Friday that it was concerned about SA’s low economic growth and rising political tensions.

It affirmed SA’s investment grade rating, giving it credit for energy sector improvements, and "greater resolve to reduce fiscal deficits at a faster pace than we expected", but warned that it could downgrade SA’s rating this year or the next, if "policy measures do not turn the economy around".

S&P’s decision was welcomed on Saturday by President Jacob Zuma, who credited the "Team SA" business, government and labour collaboration, for its "sterling work over the last few months to turn our economy around".

"The decision by (S&P), which follows on the footsteps of yet another encouraging decision by Moody’s, demonstrates that working together we can reignite our economy, attract investment and create jobs for our people," the president said.

The Treasury cautioned, however, that the next six months were critical, and there was a need to step up the implementation of measures to boost the economy.

It said that the government, business and labour would collectively intensify efforts aimed at restoring confidence and boosting

investment; unblocking obstacles to faster employment growth in major sectors; and undertaking fiscal, state-owned companies and regulatory reforms.

Under the joint leadership of Finance Minister Pravin Gordhan and Business Unity SA chairman Jabu Mabuza, "Team SA" has worked on various initiatives to boost growth, and has held a series of meetings in recent months with ratings agencies and with international and local investors in an effort to avert a downgrade. The collaborative effort, which includes 90 big business CEOs, representatives of organised labour and the government, has focused on initiatives including a private sector-led entrepreneurship fund and a nine-point plan to maintain SA’s sovereign rating.

But Standard Chartered economist Razia Khan cautioned that the risk of a further downgrade had not gone away.

"Unless the authorities demonstrate a more certain commitment to structural reforms, the risk of the loss of investment grade in December remains," she said.

Investment Solutions chief economist Lesiba Mothata said: "The likelihood of a downgrade later this year remains, especially if the Treasury’s efforts to revive economic growth come to naught."

He said consensus forecast was that the rand would depreciate to R16.60/$ by the second quarter of 2017, with 16% of the participants in a survey of 49 institutions seeing the rand pulling back to less than R15/$.

by Hilary Joffe/BDlive