Grobank CEO Bennie van Rooy’s take on S&P’s latest outlook ratings
Factually S&P did not downgrade the sovereign rating, but changed the ratings outlook from stable to negative. This implies that S&P sees more downward pressure on the rating and unless certain performance conditions are met within the next ratings period, S&P could downgrade the rating from a BB+ to a BB. S&P pointed to sluggish GDP growth expectations, rising fiscal deficits and an increasing burden of debt as the main drivers.
The reality is that the further the sovereign rating moves away from investment grade or a BBB- rating, the longer it will take to recover to the investment grade rating. It emphasizes the huge task that we have to improve our fiscal position to maintain an investment grade rating, as assigned by S&P.
Moody’s is the only ratings agency that has assigned an investment grade rating (BBB-) to the sovereign, albeit with a negative outlook. Similar concerns have been expressed by Moody’s. Government’s turnaround plans will remain critical to see economic growth and fiscal discipline returning. Should Moody’s downgrade the sovereign to junk status, cost of sovereign and local debt will increase and place further pressure on economic growth forecasts.