CAPE TOWN: South African’s three sovereign credit ratings, the Standard & Poor’s (S&P) is the worst, but the Fitch rating was the one considered to be most immediately at risk. That makes Friday night’s decision by Fitch to affirm its current rating a relief. But far from being a cause for complacency, it needs to be seen as a call to urgent action.
The S&P rating is the one that is on the cusp after it downgraded SA to just one notch above subinvestment grade — “junk” status — last year. A further downgrade would be disastrous for SA, and no one should underestimate how deep the effect could be, on the cost and availability of the foreign money SA and its company’s need, on the rand exchange rate, and on the whole financial sector, not to mention investor perceptions of SA more broadly.
But S&P has us on stable outlook, and though it is due to release an update this Friday, it has made it clear recently that it has no plans for a further downgrade — assuming the outlook for the next couple of years doesn’t get any worse. Moody’s too has recently indicated it is comfortable with its rating, which in any event is two notches into the investment grade band, so a Moody’s downgrade wouldn’t (yet) push SA off the ratings cliff.
It is worth noting that while Fitch held on SA’s sovereign rating, Moody’s on Friday downgraded Transnet’s rating — so there are some signals for policy makers there too, with SA’s weak economic growth outlook the major negative ,and Fitch is relatively optimistic, with a growth forecast of 2.1% this year; Moody’s and several economists see growth of lower than 2%.
