S. Africa at No Immediate Risk of Junk Rating, Kganyago Says

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South has no immediate risk of credit rating companies downgrading the nation’s debt to junk, central bank Governor Lesetja Kganyago said.

Standard & Poor’s, which rates South Africa one level above non-investment grade, has a stable outlook on its BBB-assessment and has said it probably won’t lower it in the next 18 to 24 months, Kganyago said in an in Johannesburg.

While Fitch Ratings has South Africa on a negative watch, “they are also rating higher” than S&P, Kganyago said. “At the moment there is no risk” of the nation’s debt dropping below investment grade, he said.

S&P, Fitch Ratings and Moody’s Investors downgraded South Africa’s sovereign ratings over the past three years as government debt increased and strikes and electricity shortages curbed economic growth. S&P and Fitch are due to publish rating assessments in June.

A rating downgrade will increase South Africa’s funding costs, put pressure on the rand and undermine financial stability, the Reserve Bank said in a released in Johannesburg. The government needs policies to support growth, keep the budget deficit under control and implement reforms to make it easier to do business, it said.

“The lackluster growth outlook and rising public debt remain the most crucial factors that can lead to negative ratings from the three ratings agencies,” the bank said in its Financial Stability Report.

The rand rose 0.5 percent against the dollar to 12.1653 as of 6:47 p.m. in Johannesburg on Thursday, taking its decline this year to 4.9 percent.
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Raising Taxes

Finance Minister Nhlanhla Nene pledged in his February budget to reduce the budget deficit to below 3 percent of gross domestic product in two years’ time by raising taxes and curbing spending growth. The target for the shortfall widened to 3.9 percent for the year that started April 1.

“The large fiscal deficit will make it difficult for the government to boost economic growth through increased spending,” the central bank said.

The central bank is sticking to its GDP growth target of 2.2 percent for this year, despite rolling blackouts that have disrupted output and weakened busines confidence, Kganyago said.

“Without the power shortages, we would have been able to grow faster,” he said. “On the domestic side, the power shortages are clearly a big constraint on growth,” while the risk of higher global interest rates may also affect the economy, he said.

Power Rationing

South Africa had its 12th day of power cuts on Thursday, the longest run in at least seven years, as electricity utility Eskom Holdings SOC Ltd. battles to meet demand. The company is rationing power after decades of underinvestment in aging plants and as facilities take longer than expected to come on stream.

Central bank policy makers accompanied government officials on an investor roadshow that coincided with the spring meetings of the International Monetary Fund in Washington, Kganyago said. The officials addressed investors’ concerns about the energy crisis as well as a flare up of anti-immigrant attacks in South Africa that’s left at least seven people dead and led the government to deploy the army into townships to curb the violence.

“We’ve got full confidence that the government, like they did in 2008, will get on top of the situation,” Kganyago said. “The response from government of throwing the security forces behind it will definitely be sending the right signal that government is prepared to nip this in the bud.”(Bloomberg)