S&P leaves SA's credit rating unchanged
S&P Global Ratings maintained its outlook on SA as stable, alleviating the fear the rating agency would give SA a further downgrade at its next ratings review.
"Since Cyril Ramaphosa's election as ANC leader in December 2017 and appointment as the country's president in February 2018, business and investor confidence have strengthened," S&P said in its latest sovereign rating report on SA, issued at 10pm on Friday night.
S&P held its credit rating on rand-denominated South African government bonds at one tier into junk status, BB+, and foreign-currency denominated bonds at two tiers into junk status, BB.
"We anticipate a pick-up in private-sector fixed investment, while lower inflation could boost households' disposable income, resulting in higher household consumption. We now estimate economic growth to average at least 2% over 2018–21, which is still below 1% per capita. We estimate that among the 20 major emerging markets, only Qatar will show slower per capita growth in 2018. We estimate SA's GDP per capita at $7,200 in 2018," its report said.
In its report, S&P raised its concerns about the ANC's policy regarding expropriation of land.
"At its December 2017 conference, the ANC adopted a resolution to explore options of land redistribution to correct historical imbalances. A motion has since been adopted by Parliament and a committee set up to gather public opinion on the process and establish if it can be done within the current Constitution, or [whether it] requires an amendment to allow compulsory acquisition of land without compensation.
"It is still too early to tell how the process will unfold, but we expect that rule of law, property rights and enforcement of contracts will remain in place and not significantly hamper investment in SA. Our view reflects our consideration of the checks and balances embedded within SA's institutional framework, which includes a constitutionally independent judiciary."
The Treasury issued a statement shortly after S&P made its announcement, saying: "[The] government will engage S&P on their areas of concern. Taking steps to improve business confidence further, achieving higher economic growth, fast-tracking the state-owned enterprise reform agenda, and ultimately restoring the country's investment-grade credit rating remains a top priority."
S&P made no mention in Friday night's note on national power utility Eskom and other state-owned enterprises.
S&P has been the most pessimistic of the big three rating agencies on Eskom’s prospects of servicing its enormous debt, cutting it to its seventh tier of junk, CCC+, in February.
It was also the first of the big three rating agencies to react when former president Jacob Zuma fired respected finance minister Pravin Gordhan on March 31 2017, by cutting SA’s foreign-currency bonds to junk status three days later. Fitch followed suit four days after S&P.
S&P left SA’s local currency debt — which accounts for about 90% of government bonds — at investment grade until November.
"SA's government debt is overwhelmingly denominated in rand, with only 10% in foreign currency. This shields public debt from exchange rate shocks," S&P said in Friday night's review of SA's sovereign rating.
"Nevertheless, a significant portion of SA's central government debt is external, as non-residents hold close to 40% of the government's rand-denominated debt, up from 37% a year ago. While the high presence of international investors in SA's debt markets helps improve liquidity and can lower the government's cost of funding, it also means the economy is vulnerable to global investor sentiment."
It added: "While the policy framework remains broadly the same as [that of] previous ANC administrations, there seems to be renewed impetus to the reform agenda. The new leadership is working on measures to enhance governance at state-owned enterprises, reviewing weak SOEs' balance sheets to enhance financial sustainability. The government has also expressed its willingness to promote private-sector investment by removing policy uncertainty, improving competitiveness in economic sectors, and announcing fiscal measures to stabilise public finances."