S&P explains South Africa’s downgrade

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The international rating agency, Standard and Poor’s (S&P) stood their ground on Wednesday explaining why they downgraded South Africa’s foreign currency ratings to sub investment grade.

Gardner Rusike, Associate Director, Sovereign Ratings and International Public Finance, S&P Global Ratings explained their rating criteria on Wednesday night in Johannesburg. He was addressing academics, business and others.

Rusike is on the rating committee which downgraded South Africa but was quick to point that it was not an individual decision. He said they have a committee which decides on that, and the rising debt in the country puts a lot of pressure on fiscal policy.

Rusike said, “The executive changes made by the president put pressure on the politics and economy. There is also policy uncertainty which is reflected in the division or infighting in the African National Congress (ANC). That is likely to continue until December 2017 (ANC electoral congress). That uncertainty weakens business confidence.”

He said the state enterprises have weak balance sheet and in most cases are bailed out by the government. S&P also think the reforms in the state enterprises are very slow to put them in a firm financial position. South Africa will have presidential and parliamentary elections in 2019. In December 2017 the ANC will have a congress to choose the party leader.

Rusike said, “The election year brings uncertainty, it presents government from taking strong decisions or programs they want to do to turn around the economy. This is also affected by weak economic growth. The government and the party (ANC) have to pull in the same direction. There are questions about policy directions and on issue like nuclear by different leader in the same party and government.”

He reiterated that political tensions impact policy choices and affect the outcomes of fiscal and economic growth. Responding to questions from the concerned South Africans, Rusike said the circumstances in the United States and South Africa are different.

He said they lowered the United Kingdom by two notches after the Brexit, Turkey after the coup and the United States in 2011. He also gave an example of Brazil where he said they downgraded it after scandals which led to the country going into recession.

Rusike said, “We rate institutions and policy stance. We say what is the future policy stance and direction and the impact on the economy. There are a lot of domestic issues like the radical economic transformation. We allow South Africa to have this discourse and relate it to credit opinion and implications on direction South Africa takes. Where there is a negative direction we flag.”

He said they also look at governance and how a country is ranked by international organizations. S&P also look on checks and balance to see if there is independence of the judiciary, institutions like the Central Bank. Enditem

Source: Xinhua/NewsGhana.com.gh

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