Finance Minister Pravin Gordhan said on Monday he was confident South Africa can avoid rating downgrades, even though ratings agencies have said a weak economy and worsening fiscal deficits pose a major risk to its investment-grade status.
Gordhan said he had constructive discussions with ratings agencies on a roadshow in London and the United States last week, and that downgrades could be avoided.
“As a country, we have shown a history of fiscal discipline and we intend to continue doing so, and we have a lot of space if needed to cut expenditure further,” Gordhan told a news conference.
Last week, Moody’s, which rates South Africa two notches above sub-investment level, put it on review for a downgrade, citing poor growth prospects and a worsening fiscal position.
Investors are also worried about continuity in fiscal policy after President Jacob Zuma changed finance ministers twice in less than a week in December.
The other two rating agencies, Standard & Poor’s and Fitch, already have Africa’s most industrialised economy just one notch above junk status.
Some analysts believe downgrades are now inevitable, given that the Treasury has been forced to cut its growth forecast for this year to just 0.9 percent from 1.7 percent previously.
“It’s a wait-and-see situation … perhaps recent developments may have bought South Africa a little bit of time,” said Nedbank Capital head of research Mohammed Nalla, referring to February’s budget, in which Gordhan vowed to contain spending.
“But buying time is very different from taking a credit rating downgrade off the table,” Nalla added.
The rand fell as much as 2.4 percent against the dollar on Monday, with analysts partly citing fears of a downgrade.
Fitch in February welcomed Gordhan’s package of spending cuts, civil service job freezes and moderate tax hikes, but said it saw a number of implementation risks, including the minister’s ability to muster political support for his measures.
Gordhan has been involved in a public spat with police investigating his role in the establishment of a spy unit within the tax collection service, and has repeatedly called the investigation a smear campaign aimed at tarnishing his and the Treasury’s credibility.