S&P Global Ratings is reassured on Reserve Bank’s independence
S&P’s Gardner Rusike says the rhetoric about the Bank’s mandate is likely to remain just that — though there are other pressure points that could affect SA’s rating
The Reserve Bank is likely to remain independent and credible, despite recent rhetoric undermining its independence, says S&P Global Ratings.
"We don’t see central bank independence or credibility being undermined, despite the rhetoric. We think it remains rhetoric," Gardner Rusike, associate director at S&P Global, said on Wednesday in Johannesburg.
Public Protector Busisiwe Mkhwebane’s recommendation that the constitutional mandate of the Reserve Bank be changed, contained in her June Absa/Bankorp report, at the time elicited a warning from S&P Global that attacks on the central bank’s independence would be negative for SA’s credit rating.
The ratings agency downgraded the country’s foreign currency credit rating to noninvestment grade in April, following President Jacob Zuma’s Cabinet reshuffle. This negatively affects the country’s ability to borrow and the costs of borrowing.
Rusike said monetary policy in SA remained stable. "We don’t see potential changes to central bank mandate following events that played out in court."
The High Court set aside Mkhwebane’s bid to have the Bank’s constitutional mandate changed from one focusing on protecting the currency in the interest of economic growth, to one that would focus on the socioeconomic wellbeing of citizens.
Mkhwebane herself backpedalled on the issue following challenges from Treasury and Parliament, which said she had overreached her powers.
Rusike said that while the Reserve Bank remained strong, SA’s institutional and political setting, the pace of economic growth, and fiscal adjustment were pressure points.
S&P Global would closely watch Finance Minister Malusi Gigaba’s medium-term budget policy statement, which he is presenting later this month, for signs that SA was staying the course on fiscal consolidation, Rusike said.
SA’s current account deficit, which, at 3.5%-4% of GDP was at its lowest level in years, meant the financing challenge was much smaller, despite the country’s reliance on portfolio flows.
However, weaker tax revenue and the contingent liabilities on government’s balance sheet presented by state-owned enterprises (SOEs) were a concern, said Rusike.
"We see real risks coming from SOEs. Support to SOEs should not exacerbate the level of the budget deficit."
Financial and governance reforms at SOEs were vital to stabilising SA’s fiscal position, he said.
"If we see pressure on fiscal performance and economic outcomes, there is a possibility SA’s rating could be changed."
S&P Global is due to deliver a ratings update on the country on November 24.