20 December 2013
The decision by international ratings agency Fitch to affirm South Africa’s credit rating is fair given the tough global economic climate and the government’s commitment to its fiscal plan, the National Treasury said in a statement on Wednesday.
The government was responding to Fitch’s affirmation of the country’s long-term foreign and local currency issuer default ratings at BBB and BBB+, respectively.
Despite being concerned about the slow pace of growth, the ratings agency said South Africa’s floating exchange rate and inflation-targeting framework acted as effective “shock absorbers” in the South African economy.
Ratings on its senior unsecured foreign and local currency bonds were also affirmed at BBB and BBB+, respectively.
Fitch said the outlooks on the long-term issuer default ratings were stable. The country ceiling has been affirmed at A- and the short-term foreign currency issuer default rating at F3.
South Africa’s Treasury said that South Africa’s strong banking system and “deep local financial markets” were also among the factors that influenced the affirmation of the country’s rating.
“The ratings agency said that government debt was largely denominated in local currency and has a high average maturity and this limited exchange rate and financing risk,” the Treasury said.
“Fitch also indicated that weak economic growth and a widening current account deficit were downside drivers preventing the economy from achieving a more positive rating.”
The “counter-cyclical approach” was one of the toughest decisions that the government took to survive the aftermath of the 2008 recession. It did this by allowing the budget deficit to increase during bad times, before reigning it in when times improved.
Standard and Poor’s
On Friday, the Treasury said it had noted Standard and Poor’s (S&P) decision to affirm the country’s longterm foreign currency credit rating at BBB and local currency credit rating at A-2.
The rating agency maintained the negative credit outlook on the rating.
The Treasury said on in a statement that the government’s view was that “S&P’s rating opinion did not take adequate account of progress made in addressing the issues that S&P had raised as potential drawbacks to their initial downgrades in 2012”.
S&P said the ratings affirmation was based on the following factors: that the government would ensure broad, largely pragmatic, policy continuity; tensions in the mining sector had been reduced; GDP growth remained lacklustre; current account deficits were relatively high; general government debt was sizable; and portfolio flows are relatively volatile.
According to S&P, South Africa’s recent lacklustre economic performance, external imbalances and labour tensions could affect its macroeconomic policy framework beyond the agency’s expectations.
“The government’s view is that S&P’s rating opinion did not take adequate account of progress made in addressing the issues that S&P had raised as potential drawbacks to their initial downgrades in 2012,” the Treasury said.
Treasury said government will continue to invest in infrastructure with the view of enhancing the productive capacity of the economy and the competitiveness of local industries.
“This will be done in a manner consistent with fiscal sustainability as tabled in the 2013 Medium Term Budget Statement,” the Treasury said.