Fitch revises SA’s rating outlook to negative
Thématique :
sud afrique
By Esmarie Swanepoel, 10 Nov 08
Ratings agency Fitch’s decision to revise South Africa’s rating outlook was unlikely to result in the downgrade of the country’s credit rating, the National Treasury said on Monday.
This comes as Fitch revised the country’s ratings outlook from stable to negative, as part of a global review of sovereign ratings of 17 major investment-grade emerging market economies.
In June, Fitch revised South Africa’s outlook from positive to stable.
Fitch affirmed South Africa’s long-term foreign currency ratings of BBB+, and the outlook revision did not constitute a rating downgrade.
“This revision must be seen in the context of the current global financial turmoil and its impact on emerging markets,” the National Treasury said in an issued statement.
The Treasury added that the country’s low-debt ratio, large cash holding and significant foreign exchange reserved cushioned the economy during times of global turbulence.
“South Africa is confident that it would not be downgraded during this period as our economic fundamentals are sound, our policies and robust and our economic institutions vigilant.”
Fitch Ratings Agency senior director Tertius Smith told Engineering News Online that a ratings downgrade would have an impact on pricing, however, a change in the outlook was unlikely to affect the market.
“When an outlook is changed, like it was changed from positive to stable, and then from stable to negative, it generally does not have a big impact on the interest rates and coupons that borrowers would pay,” he said.
The agency downgraded the sovereign ratings of Bulgaria, Hungary, Kazakhstan and Romania, while the ratings outlook for Russia have also been revised from stable to negative.
Smith said that with the revised outlook, Fitch was simply expressing its concern about emerging markets in general. “It has a lot to do with the impact of the anticipated recession next year on these economies. These economies, one way or the other, are very dependent on the developed world for exports. In the case of Korea, it is manufacturing, in the case of Russia, it is oil, and in the case of South Africa, it is minerals.”
He added that South Africa’s reliance on export posed challenges to the macroeconomic environment, and would have an impact on the country’s growth.
Another challenge was South Africa’s heavy current account deficit, which was in excess of 7% of gross domestic product.
“[The current account deficit] is largely funded by portfolio inflows, which means the risk of a ‘hard landing’ and even recession has increased significantly, given the expected reduction in capital and financial inflows to emerging markets,” Fitch said.
The National Treasury reported that capital inflows into the bond market had been strong on the past week, which suggested that international finance conditions were continuing to stabilise.
“Recent foreign direct investment inflows further suggests that South African growth prospects continue to be favourable viewed by foreign investors. The rise in investment from 15% to 22% of the gross domestic product, over the past six years, suggest that potential growth is likely to be higher in the future, and South Africa is well placed to benefit from a recovery in the global economy.”
The National Treasury added that Fitch suggested that if South Africa’s growth slowed down, as it predicted, it would be hard for the authorities to maintain sound macroeconomic and fiscal policy.
“This is not supported by our recent history, and overlooks certain material facts about the current macroeconomic and fiscal frameworks. The current macroeconomic projections of growth, revenue flows, and inflation already take into account of the factors that are raised by the Fitch Ratings Agency.”
Meanwhile, Fitch said that Emerging Europe was the most vulnerable emerging market region to the deterioration in the global financial and economic environment, owing the presence in many countries of large current account deficits and relatively high levels of short-term external debt. This rendered them susceptible to reduced capital and financial market flows, the agency stated.
Since the onset of the credit crunch in August 2007, Fitch had downgraded the foreign currency ratings of nine countries in emerging Europe by a total of 11 notches, compared with just three upgrades. It stated that eight countries were now on negative outlooks - a record level for the region - while no countries were on positive outlooks, signalling that ratings remained under downward pressure.
Ratings agency Fitch’s decision to revise South Africa’s rating outlook was unlikely to result in the downgrade of the country’s credit rating, the National Treasury said on Monday.
This comes as Fitch revised the country’s ratings outlook from stable to negative, as part of a global review of sovereign ratings of 17 major investment-grade emerging market economies.
In June, Fitch revised South Africa’s outlook from positive to stable.
Fitch affirmed South Africa’s long-term foreign currency ratings of BBB+, and the outlook revision did not constitute a rating downgrade.
“This revision must be seen in the context of the current global financial turmoil and its impact on emerging markets,” the National Treasury said in an issued statement.
The Treasury added that the country’s low-debt ratio, large cash holding and significant foreign exchange reserved cushioned the economy during times of global turbulence.
“South Africa is confident that it would not be downgraded during this period as our economic fundamentals are sound, our policies and robust and our economic institutions vigilant.”
Fitch Ratings Agency senior director Tertius Smith told Engineering News Online that a ratings downgrade would have an impact on pricing, however, a change in the outlook was unlikely to affect the market.
“When an outlook is changed, like it was changed from positive to stable, and then from stable to negative, it generally does not have a big impact on the interest rates and coupons that borrowers would pay,” he said.
The agency downgraded the sovereign ratings of Bulgaria, Hungary, Kazakhstan and Romania, while the ratings outlook for Russia have also been revised from stable to negative.
Smith said that with the revised outlook, Fitch was simply expressing its concern about emerging markets in general. “It has a lot to do with the impact of the anticipated recession next year on these economies. These economies, one way or the other, are very dependent on the developed world for exports. In the case of Korea, it is manufacturing, in the case of Russia, it is oil, and in the case of South Africa, it is minerals.”
He added that South Africa’s reliance on export posed challenges to the macroeconomic environment, and would have an impact on the country’s growth.
Another challenge was South Africa’s heavy current account deficit, which was in excess of 7% of gross domestic product.
“[The current account deficit] is largely funded by portfolio inflows, which means the risk of a ‘hard landing’ and even recession has increased significantly, given the expected reduction in capital and financial inflows to emerging markets,” Fitch said.
The National Treasury reported that capital inflows into the bond market had been strong on the past week, which suggested that international finance conditions were continuing to stabilise.
“Recent foreign direct investment inflows further suggests that South African growth prospects continue to be favourable viewed by foreign investors. The rise in investment from 15% to 22% of the gross domestic product, over the past six years, suggest that potential growth is likely to be higher in the future, and South Africa is well placed to benefit from a recovery in the global economy.”
The National Treasury added that Fitch suggested that if South Africa’s growth slowed down, as it predicted, it would be hard for the authorities to maintain sound macroeconomic and fiscal policy.
“This is not supported by our recent history, and overlooks certain material facts about the current macroeconomic and fiscal frameworks. The current macroeconomic projections of growth, revenue flows, and inflation already take into account of the factors that are raised by the Fitch Ratings Agency.”
Meanwhile, Fitch said that Emerging Europe was the most vulnerable emerging market region to the deterioration in the global financial and economic environment, owing the presence in many countries of large current account deficits and relatively high levels of short-term external debt. This rendered them susceptible to reduced capital and financial market flows, the agency stated.
Since the onset of the credit crunch in August 2007, Fitch had downgraded the foreign currency ratings of nine countries in emerging Europe by a total of 11 notches, compared with just three upgrades. It stated that eight countries were now on negative outlooks - a record level for the region - while no countries were on positive outlooks, signalling that ratings remained under downward pressure.
