Fitch's lower SA rating inaccurate, says treasury
Thématique :
sud afrique
By Bloomberg and Donwald Pressly, Business Report, 11/11/2008
Johannesburg, Cape Town - The treasury has criticised Fitch Ratings for lowering the outlook on the nation's credit rating, saying a drop in the rand will help narrow the current account deficit without pushing inflation to new highs.
"The exchange rate is the shock absorber that limits the growth of the current account by increasing the competitiveness of our exports," national treasury director Lesetja Kganyago said yesterday.
Fitch lowered its outlook on South Africa's BBB+ rating, the third-lowest investment-grade level, to negative from stable yesterday on concern that the nation will struggle to finance its current account deficit as the global financial crisis dries up investment.
Finance minister Trevor Manuel said on October 21 that the shortfall was expected to reach 7.6 percent of gross domestic product this year.
The rand has fallen more than 30 percent against the dollar this year as investors sold almost R62 billion more than they bought of the country's assets. Fitch said the depreciation of the rand might stoke inflation, which has exceeded the central bank's 6 percent ceiling for 18 consecutive months.
Fitch should "point out that the fall in the currency has been accompanied by an even bigger drop in the oil price", said Kganyago. "They raise inflation concerns, but the fact is South Africa is running negative real interest rates."
Inflation slowed for the first time in more than a year in September, easing to 13 percent from a record 13.6 percent the previous month, Statistics SA said on October 29. The Reserve Bank has raised its key interest rate 10 times since June 2006 to a five-year high of 12 percent to curb the rate of price growth.
Fitch said the slump in the currency might push up interest rates, putting the economy at risk of a "hard landing".
According to Brian Coulton, a credit analyst at Fitch, the ratings company expects the South African economy to expand by between 1 percent and 2 percent next year.
The treasury forecast 3.7 percent growth this year and 3 percent next year, according to the mid-term budget statement released on October 21.
"At the heart of my disagreement is the fact that ratings agencies are supposed to base their outlook on long-term factors," said Kganyago. "We don't share their view of our ability to absorb the shock of a global recession."
Brait economist Colen Garrow said it was significant that Fitch had not delivered a notch downgrade, which would have placed government investment from abroad in jeopardy, but rather an outlook downgrade.
T-Sec economist Mike Schussler said rating agencies were trying to cover themselves now, after making mistakes in the past. Emerging markets including South Africa were feeling the heat. He agreed with the treasury that the decision would not change the macroeconomic outlook, although it was arguable that the country's growth outlook might deteriorate somewhat.
Johannesburg, Cape Town - The treasury has criticised Fitch Ratings for lowering the outlook on the nation's credit rating, saying a drop in the rand will help narrow the current account deficit without pushing inflation to new highs.
"The exchange rate is the shock absorber that limits the growth of the current account by increasing the competitiveness of our exports," national treasury director Lesetja Kganyago said yesterday.
Fitch lowered its outlook on South Africa's BBB+ rating, the third-lowest investment-grade level, to negative from stable yesterday on concern that the nation will struggle to finance its current account deficit as the global financial crisis dries up investment.
Finance minister Trevor Manuel said on October 21 that the shortfall was expected to reach 7.6 percent of gross domestic product this year.
The rand has fallen more than 30 percent against the dollar this year as investors sold almost R62 billion more than they bought of the country's assets. Fitch said the depreciation of the rand might stoke inflation, which has exceeded the central bank's 6 percent ceiling for 18 consecutive months.
Fitch should "point out that the fall in the currency has been accompanied by an even bigger drop in the oil price", said Kganyago. "They raise inflation concerns, but the fact is South Africa is running negative real interest rates."
Inflation slowed for the first time in more than a year in September, easing to 13 percent from a record 13.6 percent the previous month, Statistics SA said on October 29. The Reserve Bank has raised its key interest rate 10 times since June 2006 to a five-year high of 12 percent to curb the rate of price growth.
Fitch said the slump in the currency might push up interest rates, putting the economy at risk of a "hard landing".
According to Brian Coulton, a credit analyst at Fitch, the ratings company expects the South African economy to expand by between 1 percent and 2 percent next year.
The treasury forecast 3.7 percent growth this year and 3 percent next year, according to the mid-term budget statement released on October 21.
"At the heart of my disagreement is the fact that ratings agencies are supposed to base their outlook on long-term factors," said Kganyago. "We don't share their view of our ability to absorb the shock of a global recession."
Brait economist Colen Garrow said it was significant that Fitch had not delivered a notch downgrade, which would have placed government investment from abroad in jeopardy, but rather an outlook downgrade.
T-Sec economist Mike Schussler said rating agencies were trying to cover themselves now, after making mistakes in the past. Emerging markets including South Africa were feeling the heat. He agreed with the treasury that the decision would not change the macroeconomic outlook, although it was arguable that the country's growth outlook might deteriorate somewhat.
