S & P’s sub-Saharan Africa MD Konrad Reuss said at a meeting on Thursday that events like the finance ministry reshuffle debacle and the country’s weak economic growth place the country at high risk of receiving a credit rating downgrade, according to a Business Day report.
Reuss was joined by other corporate leaders and economists who said that the government needs to make a more concerted effort to address the economic issues currently plaguing the country in order to avoid that actuality.
“Certainly events [were] a good sign of how policy mistakes can be made and how they can have a tremendous impact on something like the exchange rate very quickly,” Reuss was quoted saying.
Azar Jammine, Chief Economist at Econometrix said the “real challenge” lay with the socialists and communists within the ruling party that “despise credit rating agencies and, therefore, talk about us ignoring them” and those who don’t fully understand what the implications of a credit downgrade will mean for the country.
“They do not realise, however, that what these agencies say is important because if we suffer a downgrade, we will see government’s interest rates rising in the longer term and that will squeeze out its ability to spend on everything else,” he told the newspaper.
While S & P kept SA’s credit rating unchanged at BBB- last month, it has revised its outlook for the country from stable to negative, and has hinted towards a downgrade to junk status if SA’s economic outlook does not improve.
All eyes will now be on Finance Minister Pravin Gordhan and his annual budget, in which he will have to demonstrate the government’s commitment to curbing spending and an increasing public wage bill.
But if the rand continues to lose value, it will be another cause for concern and a possible trigger for a credit ratings downgrade.