South Africa’s Lower Growth Forecast By IMF Could Trigger Rating Downgrade

South Africa’s Lower Growth Forecast By IMF Could Trigger Rating Downgrade

The International Monetary Fund (IMF) lowered its forecast for economic growth in South Africa in 2016 to 0.1 percent, down from 0.6 percent in the previous estimate three month ago and much lower than the 1.3 percent it had predicted in October last year.

This review, blamed on uncertain political and economic environment, could trigger rating downgrade by global agencies that have in recent months come close to placing South African debt under junk.

The Africa’s most industrialized economy contracted 1.2 percent in the first quarter as mining and farming output slumped due to low mineral prices and the worst drought in more than a century.

According to Bloomberg, IMF growth outlook cut could spell another period of uncertainty in ratings for the country.

“(This) doesn’t really spell very good news for the ratings outlook, because as we know ratings agencies have consistently flagged the lack of growth in the economy as one of the key ratings risks for South Africa,” Jeffrey Schultz, a senior economist at BNP Paribas Securities, told Bloomberg.

South Africa’s Reserve Bank said in May the economy will expand by 0.6 percent this year and the National Treasury forecast growth of 0.9 percent in February.

According to an opinion piece co-authored by IMF’s mission chief for South Africa, Laura Papi, and senior economist, Yi wu, and published by Business Day, the lender expects the country’s economy to recover a bit in 2017 and post a 1.1 percent growth next year.

Black Americans Have the Highest Mortality Rates But Lowest Levels of Life Insurance
Are you prioritizing your cable entertainment bill over protecting and investing in your family?
Smart Policies are as low as $30 a month, No Medical Exam Required
Click Here to Get Smart on Protecting Your Family and Loves Ones, No Matter What Happens

This could however not be enough to convince rating agencies such as Standard & Poor’s (S&P), which has in June affirmed South Africa’s at its lowest investment grade, to keep the country off junk status.

In its review, S&P said South Africa needs to implement structural reforms to boost the economy, such as more flexible labor laws, to avoid its credit rating being cut to junk.

The Africa’s third largest economy has been struggling to grow amid low commodity prices caused to a slowdown in the Chinese economy – the country’s main export market for its minerals and metals — as well as a severe drought in the region which has pushed food prices and inflation higher.

Political squabbling in the President Jacob Zuma government that saw him change finance ministers twice in less than a week in December coupled by scandals in the ruling African National Congress ahead of local elections in August, has hurt investor confidence in the country.