The South African National Treasury says the government’s failure to meet its own growth target is behind a decision by international rating agency Fitch to downgrade South Africa’s growth outlook from stable to negative.
This is despite rating reviews last week from both Fitch and Moody’s affirming the country’s economy as still investment grade.
The National Treasury said here over the weekend that South Africa had been under-performing in its own growth forecasts for the past four years.
Rating agency Moody’s has kept the country’s sovereign credit rating unchanged. It stays at Baa2, which is just two notches above the sub-investment or junk status. It’s outlook also stays unchanged at negative.
This followed the release of a statement by Fitch on Friday night in which it changed its outlook on the country’s rating from stable to negative, citing political tensions and a lack of economic reforms.
Treasury Deputy Director-General Anthony Julies said: “That’s the reason why we now have this negative outlook, because it’s essentially a lack of confidence on whether what we now have projected will be achieved.”
The Treasury will be hoping that nothing upset plans to put the economy on a sustainable growth path. There are a number of so-called “event risks” which investors have priced in, including the elective and policy conference of te ruling African National Congress (ANC) party to be held next year.
Investors may demand more from the government over and above the rates charged if there’s a perceived risk in the economy. The country, which is struggling to get economic growth on track can ill afford junk status.
Such an eventuality would push up the cost of borrowing for the government and the banking sector and that could translate into development projects being put on hold, or being done at extremely elevated costs, and for consumers it could mean paying more for financial services.
Source: NAM NEWS NETWORK