Fitch watching SA response to global slowdown

JOHANNESBURG – South Africa’s ratings outlook depends on how the country responds to the global economic crisis after largely expected changes to economy-linked posts in a new cabinet, Fitch Ratings said yesterday.

Fitch director Veronica Kalema said economic policy – a key concern for ratings agencies and investors before last month’s election – was seen intact.
It was now watching how the government responded to the global downturn and whether it could stave off a deep recession.
‘There is a strong institution in the National Treasury that runs the economy, and all along, we did not see that it would be a problem that Trevor Manuel left the helm,’ she said in a telephone interview.
‘The global recession is still ongoing, so the rating will depend on the continued response to the recession.’
Fitch rates South Africa as ‘BBB+’ but put it on a negative outlook last year, as did Standard & Poor’s, due to a slowing economy and political uncertainty.
President Jacob Zuma on Sunday appointed Pravin Gordhan, the former head of the Revenue Service as finance minister, with Manuel moved to head up a powerful new planning commission.
Gordhan has been lauded for turning the tax authority into a highly efficient body, while the fact that Manuel will remain in a top cabinet post, with broad control over policy, is seen as positive, pointing to continuity.
‘We expected Trevor Manuel to leave, flags have been in a lot of reports that Manuel would leave and that the tax authority head would replace him,’ she said.
‘We think policy will remain pragmatic, it (cabinet changes) is more in line with what we expected.’
Investors had feared a shift to the left by Zuma’s administration, given the rise in influence of the trade unions and communists within an alliance with the ruling ANC.
The government has already signalled it would loosen fiscal policy, like moves in other countries, to try boost growth in response to a world downturn. It plans to spend US$15,94 billion on infrastructure over the next three years to boost growth.
Africa’s biggest economy has been hit harder than expected by the global slowdown and may already be in its first recession in 17 years.
Kalema said Fitch was looking at how the government dealt with the crisis through a whole package of measures, fiscal and monetary policy. So far, inflation targeting and a flexible exchange rate had helped adjust to the global shock.
‘We would like to see how they weather this crisis,’ she said. ‘The fiscal stimulus is helping growth and jobs but we will still need to see the government managing the fallout from the global recession over the next year or two.’
The economy shrank 1,8 per cent in the fourth quarter of last year and dire manufacturing and mining output data in the first three months of 2009 point to another quarter of contraction. -Nampa-Reuters