Plans in place to help SA economy avoid later downgrade - Gordhan
Standard & Poor's global has cited government spending as key to improving economic growth.
JOHANNESBURG - Finance Minister Pravin Gordhan said there's a plan to make sure the economy improves significantly in the next six months, to avoid a later downgrade in December.
Yesterday, the agency said despite slow economic growth, it was keeping its outlook for South Africa unchanged at triple b minus with a negative outlook avoiding junk status.
The government said it realises that there needs to be economic reform. Standard & Poor's global has cited government spending as key to improving economic growth.
In response, Gordhan said special attention is being given by cabinet to curb expenditure
"There's absolute consensus in cabinet that we've to work within the financial consensus that we have."
S&P global said it's also revised down real growth expectations to 0.6 percent for this year, from 1.6 percent forecast last December.
But Gordhan said there is a plan to address this.
" We're indeed a resisliant nation and we've many things going for us and if we build on them, in constrictive and united way, we can start getting positive results."
Gordhan said 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."
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."
The agency has pointed out South Africa's low economic growth rate and labour unrest as areas of concern.
Rusike warns the country's political turmoil highlights its economic vulnerabilities.
"Within government and the leadership in the ANC and we think that if tensions were to escalate, they might affect the implementation."
He said they will be keeping a close eye ahead of its next announcement in December.
"In terms of our focus we'll still be looking at the issues around growth and in terms of the implementation of the policy measures that they turn around the economy."
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."
S&P global and Moody's have kept their outlook unchanged so far and Fitch will release its rating on
IT'S NOT ALL GOOD NEWS
Meanwhile, S&P Global has cited the consequences of low GDP growth, as a major concern.
It said 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 said lower oil prices, a weaker exchange rate and higher electricity prices have increased inflationary pressures.
But it said energy sector improvements will likely reduce some of the economic bottlenecks.
In response, the Treasury said 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.
ECONOMISTS WELCOME DECISION
Economists have welcomed the decision by S&P Global.
Lesiba Mothatha, chief economist at Investment Solutions, said this shows that Gordhan, along with the Treasury, business and unions, have done enough to keep the country from falling into junk status.
"It gives a thumbs up to the effort put in by National Treasury and the finance minister. While we have issues in the country, I think they're fixable. When we have an opportunity from Standard & Poor's, we ought to make it count."
Economist Thabi Leoka said the move will strengthen the rand, but there are some concerns noted by the rating agency.
"They did warn that rising political tensions are accentuating vulnerability in the country's sovereign credit profile."
Isaac Matshego, an economist at Nedbank, said the announcement was not a major shock.
"The next review will be in December this year. We are very worried about the wage negotiations, particularly in the mining sector."
National Treasury has also welcomed the decision by S&P Global Ratings, saying it will give government more time to demonstrate the concrete implementation of reforms.
Meanwhile, the rand has recovered dramatically. At around 6pm, the rand was trading at around R15,11 to the US dollar, R21,93 to the pound and R17,11 to the euro.