Higher growth in 2019 not enough to see a ratings upgrade, S&P says
For ratings to move up, GDP growth higher than 2% is needed — a level which SA hasn't seen since 2013
Credit ratings agency S&P Global Ratings is confident that the government under President Cyril Ramaphosa can push growth past the 1.5% mark — but this remains too low for a ratings upgrade.
“Our base case is that the ANC wins the election and continues with the structural reforms that they started, particularly reforms that encourage investment which will see higher economic growth,” S&P associate director and primary credit analyst for SA Gardner Rusike said at the agency’s annual conference in Johannesburg on Tuesday.
“Growth is still not going beyond 2%. For ratings to go higher, you need more than that,” he said.
Rusike said the biggest concern for S&P is economic growth and the impact it has on fiscal consolidation. SA has not seen growth of 2% in five years as investment has lagged.
In November, S&P affirmed SA’s long-term currency debt at BB+, the first notch of sub-investment grade, with a stable outlook. The long-term currency rating is at BB, two notches below investment grade. Its next rating decision is expected on May 24.
“What makes our job easier is when the government can explain what it is doing to boost economic growth. That’s why we started with a constructive view. We know investment is lacking but if government’s commitments can translate into actual investment, you have a chance to reduce poverty, inequality and unemployment,” he said.
S&P expects growth to improve to 1.6% in 2019 from 0.8% in 2018. This is based on an improvement in terms of trade, a low base and the new administration under Ramaphosa, Rusike said.
“The good news is that we have not changed our ratings on SA in the last two years,” he said, citing the role of the Reserve Bank in anchoring inflation expectations, a flexible exchange rate and a judiciary that provides checks and balances.
Speaking at the same event, the Treasury's acting deputy director-general of economic policy Duncan Pieterse said: “The reason we’ve seen slow growth for so long and decoupled from the global economy is because we have seen lackluster growth in investment.”
The Treasury expects growth of 1.5% in 2019.
“There are a couple of things we are concerned about and we are busy with an update to the budget,” Pieterse said.
“Domestically we are concerned about Eskom and other [state-owned] entities in terms of risks to the fiscus and the risks to economic growth. It does pose a downside risk.”
Factors like slower global growth, structural changes in China and Brexit also pose downside risks, he said. Despite this, lower commodity prices and the improved terms of trade will still push growth higher than in 2018, he said.