Road show: Gordhan punts fiscal prudence

Finance Minister Pravin Gordhan is criss-crossing the West to assure investors that SA remains an investment-grade destination.

Johannesburg - Ratings agency Moody’s Investors Service on Tuesday hinted it could review South Africa’s credit rating to one notch above junk as Finance Minister Pravin Gordhan criss-crossed the West to assure investors that the country was an investment-grade destination.

The Moody’s announcement came as indications grew that Africa’s most-industrialised economy would slow down to less than 1 percent this year, knocked by the worst drought in more than a century and falling commodity prices.

Read: Gordhan charms, but investors wary

The rand fell to R15.49 to the dollar yesterday in the wake of the Moody’s announcement but clawed back to R15.29 by 5pm.

Bart Stemmet, a senior economist at NKC Research, said that investors wanted to see reforms that would lift the medium- to long-term growth trajectory back to above 3 percent at least. Stemmet said investors would still settle for the 1 percent growth the government adopted.

“I think at least one of the three major rating agencies will downgrade South Africa to sub-investment grade this year, most probably S&P (Standard & Poor’s),” Stemmet said.

“Again, if growth surprises on the upside, fiscal consolidation targets are met and the government implements some much-needed reforms, junk status can be avoided, but it will be difficult.”

This week, Gordhan is visiting the UK and the US trying to reassure financial markets that the government was serious about meeting its fiscal goals.

“We have a good story to tell, but clearly we need to prove to ourselves and to them that we are capable of working together to grow the economy, create jobs and make our fiscal framework a viable one,” the finance minister said.

South Africa’s business confidence stayed at a five-year low in the first quarter of this year, reflecting an overall dissatisfaction with the outlook for the economy, and that a downgrade would make it difficult to borrow money and would deter investment.

Yesterday, Barclays Africa Group said the review brought Moody’s rating in line with other major South African banking groups.

“This is an inevitable consequence of the announcement made by Barclays last week, and does not reflect any change in our financial standing. Importantly, S&P affirmed Absa’s rating, which it left unchanged, again in line with our peer South African banks.

“We remain a strong, well-capitalised and independently funded banking group, listed separately on the JSE,” the company said.

Mamello Matikinca an economist at FNB, said last month’s Budget should shift a downgrade to sub-investment grade.

Matikinca said while the proposed fiscal consolidation targets were ambitious, the effort was not sufficient to support a conclusion that a ratings downgrade would not happen.

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