Junk status on the horizon

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A downgrade by at least one of the ratings agencies is a very real possibility later in the year, Adrian Saville, Citadel chief strategist, told IOL yesterday. Even as Minister Gordhan is meeting with investors and ratings agencies at the spring meeting of the International Monetary Fund (IMF) and World Bank to allay their fears, the downgrade is already priced in, said Saville.

The country is still waiting with bated breath to see if, or when, Standard and Poor’s (S&P) and Fitch ratings are going to slap the country with a junk status, which will see major disinvestment from foreign investors.

According to the article on IOL, South Africa has adopted a nine-point plan as a catalyst for growth in the hope of appeasing the agencies, but with the IMF forecasting dismal growth of 0.6 per cent, a downgrade is looking increasingly likely. However, Investec economist Annabel Bishop told IOL that they did not foresee a sub-investment grade this year, but the possibility of a downgrade does form part of their down case scenario.

Saville also said that it’s not all doom and gloom, as the rand and bond prices rallied at the appointment of Gordhan as Finance Minister, the more recent reading of the budget, and the Constitutional Court ruling against President Zuma.