Downgrade postponed for now – SA Economy extends “Lease on Life”

S&P Global Ratings (S&P) affirmed yesterday South Africa’s long and short term foreign and local currency bond ratings at ‘BBB-/A-3’ and ‘BBB+/A-2’ respectively. The foreign currency bond rating remains one notch above sub-investment grade whereas the domestic currency bond rating remains three notches above sub-investment grade. Among the risk factors S&P listed are:

* low GDP growth is putting South Africa’s economic metrics at risk and could eventually weaken the government’s social contract with business and labour; and

* Rising political tensions are accentuating vulnerabilities in the country’s sovereign credit profile.

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. It noted that “on the fiscal side, the government is showing greater resolve to reduce fiscal deficits at a faster pace than we expected”. “We are therefore affirming our ‘BBB-/A-3’ foreign currency and ‘BBB+/A-2’ local currency ratings on South Africa.”

S&P maintained the negative outlook on the rating, citing concerns about economic growth and warned it could lower the rating by year-end or next year if policy measures do not turn the economy around. Alternatively, S&P could revise the outlook to stable if they observe policy implementation that leads to an improved business confidence environment and increased private sector investment and ultimately result in higher levels of growth. “The outlook remains negative, reflecting the potential adverse consequences of low GDP growth and signalling that we could lower our ratings on South Africa this year or next if policy measures do not turn the economy around,” the agency said.

National Treasury welcomed S&P’s decision, saying the benefit of this decision is that South Africa 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. “The rating outcome demonstrates that South Africans can unite, especially during difficult times, to achieve a common mission. In this regard, government thanks all social partners for their efforts towards achieving this positive outcome and urges our partners to continue its close working relationship with government over the period ahead.”

Treasury said the government is aware that the next six months are critical and there is a need to step up the implementation of the 9-point plan and other measures to boost the economy.

Government, business and labour will have collectively to intensify efforts aimed at:

# Restoring confidence and boosting investment amongst local and international investors;
# Unblocking obstacles to faster employment growth in key sectors; and
# Undertaking fiscal, State-Owned Companies (SOCs) and regulatory reforms.

But what is the odds? Leadership has stopped leading and is content to be mere observers, observers of what is happening around them and inside their wallets. As long as the unholy tripod of ANC, Unions and Communists manipulate every step of South Africa’s political and economic way there will be no security and each breath taken with catastrophic decisions being postponed could be the last one! The clock is ticking for the local economy and although foreign companies still make their efforts to call South Africa their new (economic) home, this could be a situation short-lived. The red card may come before the local elections and it seems exactly those local elections on 3 August might be the event we rely so much on, praying for land-slide defeat of the ANC. We dream of the municipalities between Mpumalanga and the Eastern Cape from the Highveld to the Karoo being conquered by the opposition and a subsequent revolution from the root up towards the tips of even the last of the corrupt trees obscuring an unencumbered view of the sun!

Hold your thumbs, hold your breath, but stop holding hope for the current government or the Unions to wake up from their counterproductive 20%-Salary-Increases and zero-service-delivery circus!

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