{"id":7035,"date":"2012-01-13T20:41:09","date_gmt":"2012-01-13T18:41:09","guid":{"rendered":"http:\/\/www.myza.co.za\/01\/text-fitch-affirms-south-africa-at-bbboutlook-revised-to-negative\/"},"modified":"2012-01-13T20:41:09","modified_gmt":"2012-01-13T18:41:09","slug":"text-fitch-affirms-south-africa-at-bbboutlook-revised-to-negative","status":"publish","type":"post","link":"https:\/\/www.myza.co.za\/press\/text-fitch-affirms-south-africa-at-bbboutlook-revised-to-negative\/","title":{"rendered":"TEXT-Fitch affirms South Africa at ‘BBB+’;outlook revised to negative"},"content":{"rendered":"

\t\t<\/span><\/p>\n

(The following statement was released by the rating agency)<\/span><\/p>\n

<\/span><\/p>\n

Jan 13 – Fitch Ratings has affirmed South Africa’s Long-term foreign and local currency
\nIssuer Default Ratings (IDR) at ‘BBB+’ and ‘A’ respectively. The Outlooks on the Long-term IDRs
\nhave been revised to Negative from Stable. Fitch has simultaneously affirmed South Africa’s
\nShort-term IDR at ‘F2’ and Country Ceiling at ‘A’.<\/p>\n

<\/span><\/p>\n

“The Negative Outlook reflects the limited progress on several long-standing
\nstructural issues that have over time caused South Africa’s economic performance
\nto fall behind its peers,” says Purvi Harlalka, Director in Fitch’s Sovereigns
\ngroup. “Not least of the problems that require urgent attention is the economy’s
\ninability to create sufficient jobs for its labour force. This inability has not
\nonly constrained growth and kept the tax base narrow but has also caused public
\nfinances to become increasingly redistributive in an effort to address the lack
\nof social mobility. The resultant narrowing of fiscal space undermines a key
\nsupport to South Africa’s creditworthiness,” adds Ms Harlalka.<\/p>\n

<\/span><\/p>\n

GDP growth has averaged 2.7% over the past five years, compared to a ‘BBB’ peer
\ngroup average of 3%. The gap in per capita growth is even wider. Estimates of
\npotential growth have been revised down to around 4% and such a pace is unlikely
\nto be achieved in the next few years without an acceleration of structural
\nreforms. The employment rate is a low 40% and unemployment stuck at 25%. The
\npolitical challenge presented by these issues will increase over time.<\/p>\n

<\/span><\/p>\n

South Africa’s public finances, though still a rating strength, are no longer
\nsuch a stand out strength compared to peers. Fiscal space has been used up in
\nthe recession. By Q113, the budget deficit will have averaged 5% of GDP for four
\nyears running and debt will have risen to 42% of GDP, where it will be in line
\nwith the ‘BBB’ median but 1.6x higher than in 2008 and back up to levels last
\nseen in fiscal year 1999\/2000 (FY00), when South Africa’s rating was two notches
\nlower. In Fitch’s view, the higher debt level, together with the fact that the
\nwage bill and social transfers consume 52% of the budget, has substantially
\nreduced the fiscal room available to South Africa to counteract any significant
\neconomic shocks.<\/p>\n

<\/span><\/p>\n

Although they remain better than peer medians, South Africa’s external finances
\nare also deteriorating. In 2010 South Africa became a net external debtor,
\nalbeit a small one (1.3% of GDP), from having been a net external creditor
\nduring 2004-2009. The increase in external indebtedness reflects the fact that
\nSouth Africa’s current account has been in deficit since 2004 despite the fact
\nthat there has been a commodity price boom for most of this period. The saving
\nratio is relatively low and foreign direct investment (FDI) has averaged just
\n1.5% of GDP over this period. The current account deficit (CAD) is set to widen
\nto 4.4% of GDP in 2012 from 4% in 2011 and 2.8% in 2010, following a weakened
\noutlook for exports, so the increase in net debt will continue. However, the CAD
\nis unlikely to reach the 7% of GDP levels recorded in 2007 and 2008 due to a
\nslowdown in consumption.<\/p>\n

<\/span><\/p>\n

South Africa’s ‘BBB+’ rating remains underpinned by the strength of its
\ninstitutions relative to its peers. These include a robust macroeconomic and
\nregulatory framework, an independent and objective judicial system, and able
\ngovernance. The resulting favourable business climate has enabled the
\ndevelopment of a sophisticated corporate and financial sector. The depth and
\nliquidity of the latter has enabled South Africa to borrow mainly in its own
\ncurrency – 90% of government debt is rand denominated – which is a key rating
\nstrength.<\/p>\n

<\/span><\/p>\n

South Africa’s macroeconomic framework derives important strength from the
\ncredibility of the South African Reserve Bank (SARB), which has successfully
\nmanaged inflation down over the last decade. Inflation will exceed its target
\nrange (3%-6%) in 2012 but in Fitch’s view that owes partly to exogenous factors
\nlike food and administered prices and does not diminish the SARB’s inflation
\nfighting credentials. However, inflation is typically higher than in peers as is
\nexchange rate volatility, the latter due to portfolio flows. Despite this,
\ndomestic confidence in the currency is high as evident in the low dollarisation
\nof contracts. The sound financial system is also a rating strength.<\/p>\n

<\/span><\/p>\n

Political noise has increased in recent months and is set to continue this year.
\nHowever, Fitch sees the threat of nationalisation – a key focus of debate – as
\nbeing remote. Although the African National Congress (ANC) has historically
\nfavoured a large role for the state, it is unlikely to expropriate assets.
\nHowever, its entertaining of the nationalisation debate has upset investor
\nconfidence. ANC policy towards this issue will only be clarified in the wake of
\nthe policy conference in May 2012. Any move to nationalise mines would adversely
\naffect the business climate and have immediate and negative consequences for the
\nrating.<\/p>\n

<\/span><\/p>\n

Failure to accelerate growth and make it more labour-intensive on a sustained
\nbasis will gradually weaken South Africa’s credit fundamentals and have negative
\nimplications for the rating. Conversely creditworthiness would benefit from
\nstructural reforms that increase growth and employment prospects. High
\nunemployment already fosters widespread criminal violence and deters foreign
\ninvestment. Over time it could also threaten social and political stability,
\ndamaging the investment climate further.<\/p>\n

<\/span><\/p>\n

Further increases in spending, especially the wage bill or social transfers,
\nwill limit South Africa’s already diminished fiscal space. It will also push up
\ndebt and the interest bill to levels beyond those commensurate with its current
\nrating.<\/p>\n

<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

(The following statement was released by the rating agency) Jan 13 – Fitch Ratings has affirmed South Africa’s Long-term foreign and local currency Issuer Default Ratings (IDR) at ‘BBB+’ and ‘A’ respectively. The Outlooks on the Long-term IDRs have been revised to Negative from Stable. Fitch has simultaneously affirmed South Africa’s Short-term IDR at ‘F2’ […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","ngg_post_thumbnail":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[1],"tags":[830,2370,183],"class_list":{"0":"post-7035","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-south-africa","7":"tag-news","8":"tag-reuters","9":"tag-south-africa-2","10":"entry"},"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/posts\/7035","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/comments?post=7035"}],"version-history":[{"count":0,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/posts\/7035\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/media?parent=7035"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/categories?post=7035"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/tags?post=7035"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}