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Has government done enough to avoid junk status?

S&P will today tell government today whether enough has been done to avoid SA being downgraded.

Picture: Aki Anastasiou.

JOHANNESBURG - Ratings agency, Standard and Poor's Global, will tell government today whether it's done enough to avoid the country being downgraded to junk status.

The International Monetary Fund recently forecast growth for South Africa at around 5.5 percent, with political instability damaging confidence.

However, the Finance Department and businesses have displayed a united front and it's hoped that growth will begin an upward trend.

S&P Global warned in December of a lower GDP, political instability, poor electricity supply and weak business confidence.

Around half a year later, Finance Minister Pravin Gordhan says most of these problems have been addressed.

Dr Iraj Abedian of Pan African Investment and Research says this may be enough to avert a downgrade.

"The minister has done the best he could, and chances are good that S&P might hold off for another six months."

A credit rating is used by sovereign wealth funds, pension funds and other investors to the gauge credit worthiness, and will therefore have a large impact on the country's borrowing costs.

Hopefully, a downgrade will be averted, which will be a major boost for confidence and therefore growth.

GOVERNMENT SPENDING

Government spending could be severely constrained should South Africa be downgraded to junk status.

That's the view of some financial analysts who are waiting in anticipation, along with the rest of the nation, for today's announcement.

Economist Dieter von Fintel says, in response to the financial crisis of 2008, government expanded its public works programme to help ease unemployment.

He warns this could potentially come back to haunt the state if the country is downgraded.

Analyst George Glynos says the increased borrowing cost will cut government's spending.

"Which will not be able to build that extra school, that extra house or whatever..."

Officials from S&P have warned the apparent political instability in the country won't count in its favour as it mulls whether or not to downgrade South Africa.

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