S&P’s revised outlook on SA reinforces the need for speedier fiscal and structural reforms

Marelize Santana -- Tue, 11/26/2019 - 09:46

S&P’s revised outlook on SA reinforces the need for speedier fiscal and structural reforms

“The decision by rating agency Standard & Poor (S&P) to reduce its outlook on South Africa from stable to negative was widely expected, and the markets have to a large extent already adjusted their prices accordingly.”

This is according to Prof Raymond Parsons, a well-known economist and academic from the North-West University (NWU) Business School.

Prof Parsons says S&P has South Africa already at junk status, and its assessment also resonates with a similar decision on the outlook for South Africa by Moody's on 1 November. He says the S&P review has cited rapidly deteriorating debt ratios, weak growth and a lack of strong reform measures as among their major on-going concerns about the South African economy.

“S&P's latest assessment reinforces the urgent message of the recent Medium-term Budget Policy Statement about the dire state of South Africa's public finances and the remedies needed to stabilise them, especially of state-owned enterprises like Eskom,” he says.

“S&P has emphasised that, unless the government takes steps to effectively manage the fiscal deficit and demonstrates sustained reform momentum, it is unlikely the debt will stabilise – even within three years. The S&P narrative should therefore encourage speedier fiscal and structural reforms.”

According to Prof Parsons it will, however, be Moody's decision next year on South Africa's investment rating that will nonetheless, and despite the S&P’s warnings, stand between South Africa and the prospect of universal junk status. He says this matter must be of immediate concern.

“Moody's have already put South Africa on notice that, unless the country turns the economy around soon, it will also have to put the country into junk status. This again highlights the importance of a credible fiscal strategy in the next budget in February 2020 to improve economic perceptions of South Africa.”