News Worms
News Worms

S&P downgrades South Africa's local currency debt to "junk" status

S&P downgrades South Africa's local currency debt to

On April 3 when instead of joining S& P and Fitch in downgrading SA after President Jacob Zuma replaced Pravin Gordhan with Malusi Gigaba as finance minister among other dubious appointments in his March 31 Cabinet reshuffle‚ the ratings agency appended the word "watch" to its negative outlook.

S&P said its outlook on South Africa is "stable", meaning credit metrics are not expected to change significantly over the next year.

"What the ratings review highlights is the fact that it is the politics that is killing the economics in South Africa".

"By not downgrading the country further, Fitch is providing South Africa with an opportunity to address issues that can lead to an upward revision to the ratings", Treasury said.

The poor performance of South African Rand (ZAR) exchange rates can be attributed to political turmoil within the region, which has stalled economic reform for South Africa for some time.

Meanwhile, ratings agency Moody's has made a decision to keep its rating unchanged and says it will wait until the ANC elective conference next month and the budget in February next year.

"We note that both agencies [S&P and Moody's] commented on the importance of maintaining the integrity of institutions like the South African Reserve Bank and National Treasury, which is critical to ensuring that the financial sector is resilient and capable of supporting a recovery of the economy", said Nedbank in its statement.

The agency will only complete its review after the 2018 budget. Partnership with business and labour is also crucial for restoring confidence. But this has now also been downgraded to non-investment grade.

South Africa will use its annual budget next year to outline "decisive" policy to strengthen its fiscal framework, the finance ministry said on Saturday after S&P Global Ratings cut its local currency debt to "junk" status.

The country dodged a credit rating downgrade on Thursday from Fitch, which kept both the local and foreign currency credit ratings unchanged at BB+, one notch below investment grade, with a stable outlook. "But, given insatiable demand for emerging market debt, there could be a natural underpin for even South African debt", said Lesiba Mothata, chief economist at Alexander Forbes.

In a statement on Friday‚ Moody's said: "The decision to place the rating on review for downgrade was prompted by a series of recent developments which suggest that SA's economic and fiscal challenges are more pronounced than Moody's had previously assumed".

A selloff of rand bonds - which comprise about 90 per cent of South Africa's outstanding liabilities - would raise borrowing costs for the nation as it sells more debt to plug a widening budget gap.


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