South Africa central banker warns on political wrangling

Political uncertainty is crimping South Africa’s growth potential, the central bank’s governor has warned, as the finance minister says maintaining its credit rating is a key priority

  • By Oliver West
  • 15 Oct 2017
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Gigaba: difficult balancing act
Political uncertainty in South Africa needs to be resolved as quickly as possible, the country’s central bank governor has told GlobalMarkets.
“Political uncertainty is impacting South Africa’s ability to deal with the structural reforms we’re faced with,” said Lesetja Kganyago, governor of the South African Reserve Bank. “This means we are unable to lift the potential growth rate, which puts pressure on monetary and fiscal policy.”
His comments came as finance minister Malusi Gigaba said the country faced a “difficult balancing act” when he announced his first medium term budget policy statement on October 25 amid concerns in some quarters that the government might take a populist turn.
Gigaba was bullish on the economy, but Kganyago said the balance of risks to the growth outlook was on the downside. Both SARB and the World Bank are forecasting GDP growth of 0.6% for 2017.
Gigaba told GlobalMarkets that South Africa had to be “steadfast” in maintaining its fiscal framework and implementing structural reforms, but admitted it was no easy task.
“We need to take decisions that will not let our spending patterns spiral out of control and raise our debt ratios, but at the same time we need to take decisions that will assist us to generate revenues and create confidence,” said Gigaba.
David Hedley, chief economist for sub-Saharan Africa at the Institute of International Finance (IIF), told GlobalMarkets that the budget would be closely watched to see if Gigaba would move in a populist direction.

Credit rating risk

Moody’s, the last rating agency to keep South Africa at investment grade, said last month that rising poverty and unemployment raised spending pressures, and challenged fiscal consolidation and reform commitment.
Although Gigaba said that raising growth was the “most urgent” priority for South Africa, he made it clear that maintaining the existing credit ratings of Baa3/BB+/BB+ was of crucial importance.
“If we were to lose [the investment-grade rating] by Moody’s it would severely impact the cost of borrowing, would make it difficult to finance infrastructure, and more expensive to take debt and balance the fiscal framework,” he said. “Going forward, we would risk rising inflation and an inability to meet our budget priorities.”
Moody’s has the Baa3 rating on negative outlook and is due to make a decision on the rating before year-end. The minister promised that the budget would “send the right message” to rating agencies and markets regarding the government’s credibility and fiscal commitment.

  • By Oliver West
  • 15 Oct 2017

All International Bonds

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1 Citi 346,313.82 1352 8.07%
2 JPMorgan 342,564.18 1475 7.99%
3 Bank of America Merrill Lynch 307,820.80 1070 7.18%
4 Barclays 258,940.93 980 6.04%
5 Goldman Sachs 229,669.56 780 5.35%

Bookrunners of All Syndicated Loans EMEA

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1 BNP Paribas 48,703.38 208 6.45%
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3 UniCredit 40,933.42 184 5.42%
4 Credit Agricole CIB 40,387.65 202 5.35%
5 SG Corporate & Investment Banking 38,617.85 150 5.11%

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Rank Lead Manager Amount $m No of issues Share %
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1 JPMorgan 14,514.87 63 9.18%
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3 Citi 9,971.36 58 6.31%
4 Morgan Stanley 8,572.10 54 5.42%
5 UBS 8,414.70 37 5.32%