11 November 2008
Credit agencies had lost integrity in the midst of the ongoing global financial crisis and, in an attempt to regain credibility, had downgraded many emerging markets from stable to negative, Econometrix Treasury Management economist Russell Lamberti said on Tuesday.
His comments come after international ratings agency Fitch revised South Africa’s BBB+ credit rating from “stable” to “negative”.
Ratings agencies were in part to blame for what was happening on financial markets, Lamberti said, and had reverted to an ultra-conservative outlook on economies in an attempt to save face.
He said nothing much had changed in terms of South Africa’s fundamental financial situation, and that the country was better placed to deal with the global financial woes than its peers.
“It was a blanket reaction to emerging markets,” Lamberti said.
“Growth forecasts for the South African economy will probably have to be revised down, though . we will achieve about 2-3 percent for the coming year,” he said.
Credit revision ‘not a downgrade’
South Africa’s National Treasury, reacting to Fitch’s move, said the credit rating revision did not constitute a rating downgrade – a view also supported by Lamberti.
The Treasury said in a statement on Tuesday that the revision should be seen in the context of the current global financial turmoil and its impact on emerging markets, with shift to a negative outlook taking place alongside 17 other emerging markets.
Unlike a number of developed and emerging market countries, the South African government had not found it necessary to support its banking sector through the current financial crisis due to sound regulation, good capital adequacy ratios and sufficient liquidity conditions prevailing in the banking system, the Treasury said.
In its latest Financial Stability Assessment Report, released last month, the International Monetary Fund (IMF) said South Africa’s financial system was fundamentally sound and well-capitalised.
Fitch Ratings also suggested that if South Africa’s growth slowed down as it predicted, it would be difficult for the authorities to maintain sound macroeconomic and fiscal policies.
The Treasury responded by saying this view was not supported by South Africa’s recent history, and overlooked certain material facts about the current macroeconomic and fiscal frameworks.
“The current macroeconomic projections of growth, revenue flows, and inflation already take into account all of the factors that are raised by Fitch Ratings.”