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UPDATE 1-South Africa's Gordhan defends need to deal with ratings agencies
February 23, 2017 / 4:03 PM / 10 months ago

UPDATE 1-South Africa's Gordhan defends need to deal with ratings agencies

* Ratings agencies concerned about low growth

* Political tension also seen as a risk

* ANC picks new party leader in December (Adds details, Moody‘s, Fitch comments, analyst)

By Mfuneko Toyana

CAPE TOWN, Feb 23 (Reuters) - South Africa’s Finance Minister Pravin Gordhan said on Thursday he had spoken to credit ratings agencies after delivering the national budget and said it was important to take note of their views.

Gordhan on Wednesday targeted the wealthy with tax hikes in a budget aimed at reining in a deficit after downgrade warnings by the three major ratings agencies.

The minister faced questions from a parliamentary committee on Thursday on the sway the agencies have over in Africa’s most industrialised economy.

S&P, Fitch and Moody’s have said South Africa’s credit ratings could be downgraded if growth remains weak and Pretoria’s commitment to fiscal prudence comes into doubt.

S&P and Fitch’s both rate South Africa’s credit one level above junk status, while Moody’s puts it two notches above.

The agencies have been criticised by ruling party officials for saying that political tension in the African National Congress (ANC) ahead of their conference in December to pick a new party leader could trigger downgrades.

“We don’t allow them to govern South Africa ... We have political and fiscal sovereignty,” Gordhan said, in response to a question by a member of the parliamentary committee.

“They can impose nothing on us at the moment, but if we slip on the fiscal side they can, and we will find ourselves like other African countries in the world at the door of the (International Monetary Fund).”

The Treasury forecasts 2017 economic growth of 1.3 percent, up from 0.5 percent in 2016, but still well below a 5 percent government target. Unemployment is at a near-record 26.5 percent.

Moody’s said on Thursday government drawdowns were rising and posed increasing risks to its fiscal position, while Fitch warned of tensions in the ANC “which are diverting political energy from economic reform”.

The Treasury is targeting a budget deficit of 2.6 percent of national output by 2019/20 from 3.4 percent now.

BNP Paribas Securities South Africa economist Jeffrey Schultz wrote in a note that politics remained the biggest risk to South Africa’s investment-grade credit rating in 2017.

“Another cabinet reshuffle could scupper any progress made on the public finances,” Schultz said.

Financial markets have been rattled by media reports that Gordhan, seen by investors as a guarantor of stability, might be moved from the Treasury in a cabinet reshuffle. Gordhan has said it is the president’s prerogative to keep or replace him. (Writing by Olivia Kumwenda-Mtambo; Editing by James Macharia and Andrew Roche)

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