Gordhan: Ratings decision is a good start to improving SA's economy

Pravin Gordhan says while there’s a lot to be done to grow the economy, SA is moving in the right direction.

Finance Minister Pravin Gordhan. Picture: Christa Eybers/EWN

JOHANNESBURG - Finance Minister Pravin Gordhan says the decision by Standard & Poor's Global to keep South Africa's rating unchanged is a good start to improving the country's growth, and to continue implementing reform programs.

The ratings agency's decision to keep the country at triple B-minus, with a negative outlook, avoiding junk status, is a huge relief for the country.

Gordhan says while there's a lot to be done to grow the economy, the country is moving in the right direction.

"All of us benefit from increased growth, increased confidence, increased investments and institutions both in the private sector and in the public sector working well towards a common welfare of all South Africans."

While the rating agency noted the drought structural constraints and low manufacturing outputs as concerning factors, its recognised steps taken by government to stimulate economic growth.

S&P Associate Director Gardner Rusike also highlighted the threat that political turmoil poses for the economy, but has praised Eskom for its improvements in delivering electricity.

"We believe that there are steps that are being taken by the government, so it is an issue of saying whether the steps will be taken in full; in terms of implementation and also whether they help to achieve the desired outcome, which is to improve the rating."

Economists have welcome the decision, saying it acknowledges the hard work of the finance minister, Treasury, business and unions to keep the country from falling into junk status.

Chief economist at investment solutions Lesiba Mothatha says, "It was widely expected; the olive branch that has been extended by S&P is welcome. I think it gives thumbs up to the efforts that are being put by the National Treasury and finance minister, while we have issues in the country I think they are fixable."

IT'S NOT ALL GOOD NEWS

Meanwhile, S&P Global has cited the consequences of low GDP growth, as a major concern.

It says poor growth could eventually weaken government's social contract with business and labour.

The ratings agency has revised down growth assumptions to 0.6 percent for this year, from the 1.6 percent forecast last December.

It also says lower oil prices, a weaker exchange rate and higher electricity prices have increased inflationary pressures.

But it says energy sector improvements will likely reduce some of the economic bottlenecks.

In response, the Treasury says it has been warned that the rating could be downgraded later this year if policy measures do not turn the economy around.

It however does welcome the decision by S&P global to keep the rating unchanged.