S&P affirms South Africa sovereign rating at BBB, outlook remains negative.

By bne IntelliNews March 15, 2013
Standard & Poor's Ratings Services has affirmed its long- and short-term foreign currency sovereign credit ratings on South Africa at BBB/A-2, saying fiscal consolidation may be endangered by pressures associated with public-sector wages, development needs, and lower-than-projected economic growth, while rising current account deficits heighten the countrys dependence on external financing. The global ratings agency affirmed also its A-/A-2 local currency ratings and the zaAAA/zaA-1 South Africa national scale ratings. Its outlook on the ratings remained negative in line with its view that recent lackluster economic performance, increasing external imbalances, and potentially resurging labour tensions could weaken further South Africa's macroeconomic policy framework. As a whole, S&P expects the incumbent government under President Jacob Zuma to ensure broad policy continuity, and the Zumas African National Congress (ANC) party to win the 2014 general and presidential elections. S&P noted that South Africas economic growth, which slowed to 2.5% in 2012 from 3.5% a year earlier, is constrained by supply-side shortages, including infrastructure bottlenecks, labour market rigidities, and skill shortages. The agency downgraded in October 2012 South Africas sovereign credit rating to BBB from BBB+ with negative outlook, saying mining strikes and social tensions were likely to hurt economic growth and weaken fiscal flexibility. S&P said it would lower further South Africa's ratings if business and investment climate weakens further, for instance if labor disputes escalate again or if production costs ramp up and this weighs on growth. A potential further increase in external imbalances or a reduced availability of foreign funding to fill the current account gap would also have a negative effect on ratings. The agency added that an upward revision of the outlook to stable is possible in case that the increase in public sector debt is offset by an improvement in investment and economic growth prospects and if industrial relations in the mining sector return to an established framework.

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