South Africa escaped a ratings downgrade to junk status last week bringing some relief to President Jacob Zuma and his administration ahead of a watershed election.
Ratings agency, Standard and Poor’s maintained a negative outlook on South Africa; this followed some concerted efforts from Finance Minister, Pravin Gordhan, especially on ensuring the country does not spend more than it has.
The landmark ruling by the Constitutional Court that Zuma had violated the country’s supreme law by not upholding findings of the Public Protector, also contributed to some relief by S&P. This demonstrated the country’s institutional strength.
“We have acknowledged over the last two months that the call would be a lot closer with the S&P because what happened in the first half of the year showed institutional strength in South Africa,” Gina Schoeman, Economist at Citi Bank told CNBC Africa.
Standard & Poor’s credit rating for South Africa stands at BBB- with negative outlook. The ratings agency wants to see reforms in mining and labour. Politics is also one of the challenges facing the country’s credit ratings outlook.
The institutional strength could have made S&P delay its decision on South Africa, she reckons. What happened last Friday is a big applause to the Treasury, Finance Minister Pravin Gordhan and the Reserve Bank,” Schoeman added.
She also said there was a collective sigh of relief in South Africa.
“They still have an opportunity to make another decision in December and coming events from the elections in August and the mid-term budget. Speaking from the onshore and offshore crowds there were indications that they would not downgrade and would wait until December,” she says.
“This could be a short-lived development as GDP is likely to contract.”