South Africa’s credit rating has been kept at sub-investment grade BB+ with a stable outlook. This is good news for an economy that is just coming out of a technical recession with STATS SA announcing a 2,2% growth in GDP for the 3rd quarter of 2018 earlier this week.
However, according to Fitch managing director James McCormack, sovereign risks in 2019 will centre on the tightening of global financial conditions, potential changes in trade policies that increase impediments to the flows of goods and services across borders, and heightened, or unexpected, political and geopolitical risks that quickly dominate the policymaking environment and market conditions.
This means South Africa should by no means relax.
Fitch sees a further tightening of global financial conditions in 2019 as the largest central banks move collectively to quantitative tightening for the first time. US policy uncertainty persists, centred on trade policy.
Also, the fall in commodity prices in 2014 and continued growth in the number of newly rated sovereigns in Sub-Saharan Africa have led to a marked expansion of the ‘B’ category, where South Africa now seems firmly lodged. Nearly 30% of sovereigns are rated in this lowest category, and Fitch does not project any meaningful change in the category distribution of ratings in 2019.
Factors that contributed to the unchanged Fitch rating include president Ramaphosa’s stimulus package announced in September this year, which is to focus on growth, structural reforms and reprioritising expenditure, as well as the revised Mining Charter that lowered the levels of uncertainty in the industry while it raised regulatory costs.
Eskom can hinder South Africa’s progress and a possible move out of the B ratings category. UASA therefore welcomes Public Enterprises minister Pravin Gordhan’s decisive action and announcement yesterday that Eskom’s full attention will be focussed on finding fast and efficient solutions for the power giant’s problems, with the leave of all Eskom executive cancelled.
UASA echoes the sentiments of Gordhan and would like to see the undertaking of no power outages over the festive season stretch beyond that time frame into the future. Electricity supply is of vital importance to the economy and country as a whole. Should Eskom not attend to this urgently then any growth we have seen in the 3rd quarter of 2018 will be reversed.
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