Downgrade risk remains
South Africa's growth between 2000 and 2015 has been disappointing, according to S&P, but an acceleration is expected.
South Africa is likely to experience moderate growth in 2017 but Standard & Poor (S&P) warns that the country is still vulnerable to a credit downgrade.
S&P chief European economist Jean-Michel Six said South Africa's slower growth preceded the global downturn, and it had underperformed with comparable Gross Domestic Product (GDP) per capita ratios.
“Growth performance between 2000 and 2015 has been disappointing in comparison. We are expecting an acceleration in this economy this year,” said Six.
South Africa's first credit downgrade was in 2012 and the second was in 2014. The current negative outlook reflects weaker-than-expected real GDP growth, which was 0.3% in 2016, lower than the Treasury's forecast of 0.5%.
The associate director of sovereign and international public finance ratings at S&P, Gardner Rusike, said: “To address inequality and unemployment, South Africa needs to grow at a much faster pace. South Africa has been running current account deficits on a more sustainable basis at 4% of GDP, but the debt of the government has been rising and that's still the case.”
Rising contingent liabilities are a pressure point when combined with rising government debt. “Contingent liabilities need to be contained so they don't impact on the credit worthiness of the sovereign outlook,” said Rusike.
Eskom stands out in its use of guarantees, which grew at a faster pace than the Treasury was expecting. “Much of those pressures will remain in the forecast period and will impact on Eskom's ability to raise revenue,” said Rusike.
S&P could lower South Africa's ratings if GDP growth or fiscal consolidation does not improve in line with current expectations, political interference continues to weaken institutions, and net government debt and contingent liabilities exceed current expectations.
“We could revise outlook to stable if there is policy implementation in sectors like mining and labour,” said Rusike.
This would lead to an improvement in business confidence and an increase in private-sector investment, which would lead to higher GDP growth and improving fiscal dynamics.
BUSINESS DAY
S&P chief European economist Jean-Michel Six said South Africa's slower growth preceded the global downturn, and it had underperformed with comparable Gross Domestic Product (GDP) per capita ratios.
“Growth performance between 2000 and 2015 has been disappointing in comparison. We are expecting an acceleration in this economy this year,” said Six.
South Africa's first credit downgrade was in 2012 and the second was in 2014. The current negative outlook reflects weaker-than-expected real GDP growth, which was 0.3% in 2016, lower than the Treasury's forecast of 0.5%.
The associate director of sovereign and international public finance ratings at S&P, Gardner Rusike, said: “To address inequality and unemployment, South Africa needs to grow at a much faster pace. South Africa has been running current account deficits on a more sustainable basis at 4% of GDP, but the debt of the government has been rising and that's still the case.”
Rising contingent liabilities are a pressure point when combined with rising government debt. “Contingent liabilities need to be contained so they don't impact on the credit worthiness of the sovereign outlook,” said Rusike.
Eskom stands out in its use of guarantees, which grew at a faster pace than the Treasury was expecting. “Much of those pressures will remain in the forecast period and will impact on Eskom's ability to raise revenue,” said Rusike.
S&P could lower South Africa's ratings if GDP growth or fiscal consolidation does not improve in line with current expectations, political interference continues to weaken institutions, and net government debt and contingent liabilities exceed current expectations.
“We could revise outlook to stable if there is policy implementation in sectors like mining and labour,” said Rusike.
This would lead to an improvement in business confidence and an increase in private-sector investment, which would lead to higher GDP growth and improving fiscal dynamics.
BUSINESS DAY
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