‘South Africa has no immediate risk of junk rating’

South Africa- image source prasannaholidays

South Africa- image source prasannaholidays

SOUTH Africa’s Central Bank Govenor Lesetja Kganyago, said, “at the moment there is no risk” of the nation’s debt dropping below investment grade.

South Africa has no immediate risk of credit rating companies downgrading the nation’s debt to junk, central bank Governor Lesetja Kganyago said.

Standard & Poor’s, which rates South Africa one level above non-investment grade, has a stable outlook on its BBB-assessment and has said it probably won’t lower it in the next 18 to 24 months, Kganyago said in an interview in Johannesburg.

While Fitch Ratings has South Africa on a negative watch, “they are also rating us higher” than S&P, Kganyago said. “At the moment there is no risk” of the nation’s debt dropping below investment grade, he said.

S&P, Fitch Ratings and Moody’s Investors Service downgraded South Africa’s sovereign ratings over the past three years as government debt increased and strikes and electricity shortages curbed economic growth. S&P and Fitch are due to publish rating assessments in June.

A rating downgrade will increase South Africa’s funding costs, put pressure on the rand and undermine financial stability, the Reserve Bank said in a report released in Johannesburg.

The government needs policies to support growth, keep the budget deficit under control and implement reforms to make it easier to do business, it said.

“The lackluster growth outlook and rising public debt remain the most crucial factors that can lead to negative ratings from the three ratings agencies,” the bank said in its Financial Stability Report.

The rand rose 0.5 percent against the dollar to 12.1653 as of 6:47 p.m. in Johannesburg on Thursday, taking its decline this year to 4.9 percent.

Raising Taxes
Finance Minister Nhlanhla Nene pledged in his February budget to reduce the budget deficit to below 3 percent of gross domestic product in two years’ time by raising taxes and curbing spending growth. The target for the shortfall was widened to 3.9 percent for the year that started April 1.

“The large fiscal deficit will make it difficult for the government to boost economic growth through increased spending,” the central bank said.

The central bank is sticking to its GDP growth target of 2.2 percent for this year, despite rolling blackouts that have disrupted output and weakened busines confidence, Kganyago said.

“Without the power shortages, we would have been able to grow faster,” he said. “On the domestic side, the power shortages are clearly a big constraint on growth,” while the risk of higher global interest rates may also affect the economy, he said.

Receive News Alerts on Whatsapp: +2348136370421

No Comments yet