JOHANNESBURG, Aug 5 (NNN-SABC) -- International rating agency Standard & Poor (S&P) has warned that South Africa's current negative outlook poses a risk to its sovereign rating which may be lowered in the next 12 months.
S&P emerging markets analyst Gardner Rusike team says it is important that the country gets positive news and some growth in its economy to avoid a further downgrade.
The rating agency says lower economic performance and political risks continue to be the biggest risk downgrades for South Africa when it took part in the Department of Trade and Industry (dti) Economic Policy Dialogue here Friday.
Rusike said that the S&P had forecast South Africa's gross domestic product (GDP) to grow at 1.0 per cent and the government needed to make improvements to raise the level of economic growth.
We have a negative outlook on South Africa which means that there is a chance that the ratings could still be lowered. We are still seeing elevated political risks which we believe if they continue they can continue to impact on the economic and fiscal outcomes and potentially could lead us to lower the ratings and this could be 12 months from the first time we issued a negative outlook," said Rusike.
Ronald Cooper, the head of credit rating services, at South Africa's Financial services Board said: We have seen a shift in commentary over the last period of time where there was pure economic reasons given for pending downgrades or threats of downgrade; of late we have noticed a lot of political comment and political inclusion in the releases and we are still trying to gauge if this is included in the methodology or not.
Rusike said indebted State-owned African Airline's current financial problems could also have a potential impact on the sovereign balance sheet.
(State-owned power utility) Eskom is the largest in terms of their (government's) guarantees and the support that they need. SAA is smaller in terms of the support that they get but if they don't get support from the government a default on Eskom would have negative consequences on government. So it is important to give them support and to stabilise those State-owned entities," Rusike said.
S&P said it was also important for the mining sector to reach an agreement and understanding to influence a positive outcome of a rating decision. Mining is an important sector. It's a labour-intensive sector, so when mining downsizes investments and people lose jobs that become a burden on the State in terms of providing income for those individuals," the rating agency noted.
"So it's important for the mining sector at least to agree with government on legislation or on the Mining Charter. So infighting does not help and it's important to get together - which can be good for the economy, said Rusike.
Source: NAM NEWS NETWORK