Standard & Poor's warns on ‘prudent’ policies

Standard & Poor’s has affirmed its local and foreign currency ratings for SA, but the ratings agency warned they could be downgraded next year if there were signs that “commitment to prudent macroeconomic management was weakening”.

The agency left SA’s foreign currency rating unchanged on Friday at BBB+, the third-lowest investment grade, while its local currency rating remained at A+.

S&P maintained the negative outlook for SA’s creditworthiness that it has held since November last year.

The ratings agency ascribed this to “downside macroeconomic risks to our base case (continuation of the current policies under President Jacob Zuma ), combined with political uncertainty surrounding the prospects for fiscal consolidation once growth recovers”.

But it said the decision not to downgrade the ratings this month was driven by SA’s “prudent macroeconomic policies, a moderate (albeit rising) debt burden and stable political institutions”.

The recession would see SA’s fiscal deficit reach 8% of gross domestic product (GDP) for the current year to March, compared with an initially budgeted 4%.

Public sector borrowing was expected to reach 12% of GDP in the same period, while the debt-to-GDP ratio would continue to rise, reaching 41% in the 2012-13 fiscal year.

S&P expected a broad continuation of the “prudent” macroeconomic stance of recent years, with the Treasury retaining the main role in determining policy.

But it cautioned that “the greater diversity of economic views in policy circles, while a positive for political openness, could complicate efforts to bring the fiscal deficits down in the medium term”.

Citigroup economist Jean- Francois Mercier said the warning referred to concern about pressure from the African National Congress’ partners in the tripartite alliance, the Congress of South African Trade Unions, and the South African Communist Party, for a leftwards shift in fiscal policy.

Source: Business Day