Ratings agency Standard & Poor’s Global says it has confidence in South Africa but warns that a lot of work lies ahead before the country’s credit rating returns to investment grade.
Last year the agency downgraded South Africa to junk status when state capture destroyed investor confidence and some state-owned companies,
However, according to the agency’s Konrad Reuss, the country’s economy is on the mend.
“There’s a lot of goodwill out there now to get it right and to bring the economy back onto a more sustainable growth path. However, it’s not going to be easy.”
Reuss emphasised that it was critical for South Africa to improve its growth as it is an aspect considered especially important from a credit perspective.
“In a growing, economy problems can be dealt with more easily. For the fiscus, a growing economy means more tax intake and more money to deal with problems in the public sector.”
S&P’s comments come after Finance Minister Malusi Gigaba’s Budget speech on Wednesday. On Thursday, Gigaba was forced to defend his decision to up value-added tax after the decision was criticised by various stakeholders for being anti-poor.
VAT is set to increase from 14 to 15 per cent on 1 April 2017.
According to the Finance Minister, the budget, which he described as “tough, but hopeful”, was aimed to help rather than hurt poor people.
“It’s wrong to say it’s fine for us to be downgraded because the poor already lives in junk.”
Gigaba explained that if Moody’s would have joined other rating agencies in downgrading South Africa’s credit rating, a flight of capital would have been triggered, the cost of government borrowing would have increased, and job losses would have stifled any chance of growing the economy.
The hope is that the downgrade by Moody’s has now been averted.
The poor people, Gigaba said, would have suffered the most.
“The only other place where we can borrow money from when the financial markets or the bond markets say that we're such a huge risk or have debt we can't pay is the International Monetary Fund. Believe you me, that is not pro poor.”
Ratings agency, Moody’s, is set to review the country’s credit rating in March.