Investment: South Africa dodges bullet

“If we don’t see that come December, then I still think that a downgrade into sub-investment-grade territory for our foreign currency rating is very much still on the cards”.

On Friday, S&P affirmed South Africa’s long- and short-term foreign and local currency bond ratings at “BBB-/A-3” and “BBB+/A-2” but warned that the outlook remained negative.

Ratings agency Standard and Poor’s (S&P) has kept its assessment of the South Africa’s sovereign credit rating unchanged but with an outlook on negative.

But with both S&P and Fitch just a step away from a possible downgrade to junk, a grade eschewed by many large pension and endowment funds, some economists say they see little evidence that the government is turning things around.

The rand extended earlier gains to trade at 15.0600, up more than 3 percent on the day.

“South Africa’s economic and political climate has deteriorated significantly, unemployment has increased, interest rates have spiked, and business and consumer confidence is low”, Novare’s Francois Botha said after the S&P announcement.

Still, it said, energy sector improvements will likely reduce some of the economic bottlenecks and pending finalisation of labour and mining reforms could engender a positive confidence shock.

However, on the fiscal side, the government is showing greater resolve to reduce fiscal deficits at a faster pace than the firm had previously expected, which is why it was holding back on a cut – for now.

Inkatha Freedom Party spokesman Narend Singh said the S&P decision was certainly a measure of relief, but South Africa was not out of the woods yet.

South Africa has been plagued by political controversy as its growth this year is expected to hit its lowest since the 2008 world economic crisis.

At the same time, S&P affirmed the “zaAAA/zaA-1” South Africa national scale ratings.

A cut to “junk” status would have made borrowing more expensive for Pretoria, making it harder to plug a budget deficit estimated at 3.2% of GDP for the 2016-17 financial year.

“The benefit of this decision is that SA is given more time to demonstrate further concrete implementation of reforms that are underway aimed at achieving higher levels of inclusive growth and place public finances on a sustainable path”, it said.

Finance Minister Pravin Gordhan said S&P and Fitch met the Treasury two weeks ago, with S&P also visiting businesses and other stakeholders.