SA handed lifevest: S&P affirms investment grade rating, outlook -ve

JOHANNESBURG, June 3 (Reuters) – S&P Global Ratings on Friday affirmed South Africa’s investment-grade credit rating and kept its negative outlook, pushing the rand higher.

S&P affirmed the rating on the sovereign debt of Africa’s most industrialised country at BBB-, but warned that the outlook remained negative, reflecting the potential adverse consequences of low GDP growth.

“The outlook remains negative, reflecting the potential adverse consequences of low GDP growth and signalling that we could lower our ratings on South Africa this year or next if policy measures do not turn the economy around,” S&P said in a statement.

The rand extended earlier gains to trade at 15.0600, up more than 3 percent on the day.

South Africa’s Treasury welcomed the decision by S&P, saying it would give government more time to demonstrate the concrete implementation of economic reforms.

“The benefit of this decision is that South Africa is given more time to demonstrate concrete implementation of reforms aimed at achieving higher levels of growth and place public finances on a sustainable path,” Treasury said in a statement.

A cut to below investment grade would have pushed up Pretoria’s borrowing costs, making it harder to plug a budget deficit estimated at 3.2 percent of GDP in the 2016/17 financial year.

Standard & Poors media statement

Overview

Low GDP growth is putting South Africa's economic metrics at risk and 
could eventually weaken the government's social contract with business and
labor.
Rising political tensions are accentuating vulnerabilities in the 
country's sovereign credit profile.
Still, energy sector improvements will likely reduce some of the economic 
bottlenecks and pending finalization of labor and mining reforms could 
engender a positive confidence shock. On the fiscal side, the government 
is showing greater resolve to reduce fiscal deficits at a faster pace than
we expected.
We are therefore affirming our 'BBB-/A-3' foreign currency and 'BBB+/A-2' 
local currency ratings on South Africa.
The outlook remains negative, reflecting the potential adverse 
consequences of low GDP growth and signaling that we could lower our 
ratings on South Africa this year or next if policy measures do not turn 
the economy around.

On June 3, 2016, S&P Global Ratings affirmed its long- and short-term ‘BBB-/A-3’ foreign currency and ‘BBB+/A-2’ local currency sovereign credit ratings on the Republic of South Africa. The outlook remains negative.

At the same time, we affirmed the ‘zaAAA/zaA-1’ South Africa national scale ratings.

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