South Africa Rejects Standard and Poor’s ‘Political Risk’ Rating

Reserve Bank of South Africa
Reserve Bank of South Africa

South Africa’s National Treasury has rejected Standard & Poor’s (S&P’s) revision of the outlook on South Africa’s sovereign credit rating, saying the ratings agency has mistaken “political debate and a vigorous exchange of ideas on policy options” for political risk.

On Wednesday, S&P announced that it was revising, from stable to negative, the outlook on South Africa’s BBB+ sovereign credit rating.

‘Looming economic and social pressures’

S&P said in a statement that the revision “reflects the potential for a downgrade if economic and social problems feed into the political debate” in the run-up to South Africa’s 2014 elections, “and consequently further put pressure on the policy framework”.

The agency said it believed that South Africa’s “near-term political pressures have diminished”, that the country remained committed to further fiscal consolidation and stabilization of its debt levels, and that abrupt shifts in the policies of the ruling African National Congress (ANC) were unlikely.

“Nevertheless, we think that looming economic and social pressures could gradually affect the country’s policy framework,” S&P said. “In the run-up to the 2014 elections, the ANC’s centrist wing may make gradual concessions to the more populist expectations from within and without the party.”

Political debate ‘part of democracy’

South Africa’s National Treasury, in response, said on Wednesday that that “we disagree with the assessment of the political risk in South Africa.

“Political debate and a vigorous exchange of ideas on policy options are part and parcel of the fibre of a democratic dispensation,” the Treasury said in a statement. “This cannot be construed as political instability.

“The South African government will continue to place higher economic growth and job creation at the core of its economic policy, within a transparent investment and sustainable fiscal framework.”

‘Commitment to fiscal consolidation’

The Treasury added that, despite continued global economic uncertainty, the South African economy had continued to demonstrate resilience, and the country’s 2012 National Budget “balances support to the economy with a gradual consolidation of South Africa’s fiscal path to ensure sustainable public finances.

“The budget deficit is projected to decline to three percent of gross domestic product (GDP) over the medium term, and net government debt is expected to peak at 38.5 percent of GDP in 2014/15,” the Treasury said.

“This is consistent with government’s commitment to fiscal consolidation over the medium term.”

At the same time, the Treasury said, the 2012 Budget had identified a number of levers to “activate both public and private sector capabilities” in the country, including a major state-led infrastructure programme, support for industrial development and special economic zones, expansion of employment programmes, and improvements in further education and skills development.