Rating agency Fitch cut South Africa’s sovereign credit rating by one notch to BBB-, the lowest investment grade category, on Friday, citing the slowing economy and rising debt. It assigned a stable outlook to the rating.
Earlier, Standard & Poor’s had kept its rating for South Africa at BBB-, also one notch above “junk” grade but changed the outlook to negative from stable, saying this reflected the view that economic growth might be lower than expected. Moody’s assigns a similar rating to Africa’s most industrialised economy. In a statement, S&P said it expected GDP growth in 2016 to remain around 1.6% and only increase above 2% from 2017 as the capacity of electricity supply improved.
“The negative outlook reflects our view that GDP growth might be lower than we currently expect, or that fiscal flexibility might reduce owing to contingency risks from state-owned entities with weak balance sheets,” it said. Fitch also slashed its 2015 growth forecast, to 1.4% from 2.1%, and lowered the projection for next year to 1.7% from 2.3%. “While growth is expected to accelerate to 2.4% in 2017, it will remain well below the country’s growth trend before 2008 of around 4% and the NDP target of 5%,” the rating agency said in a statement.
The National Treasury cut its economic growth forecast for 2015 to 1.5% in October from the 2% predicted in February, citing domestic energy constraints and the impact of a global slowdown. Fitch also said “additional delays to the availability of new electricity generation capacity … will likely constrain growth for another two years.” Fitch said it expected gross general government debt to increase to 51% of GDP at the end of the 2015/16 financial year and to 52.4% in 2017.
The Treasury did not immediately comment on the S&P move on Friday, with a spokeswoman saying it would issue a statement once the Fitch review was out. Fitch’s decision came after the market close but the rand currency briefly turned weaker against the dollar after S&P’s statement, before recouping some losses. “The decision to change the outlook … speaks volumes of the steady deterioration in credit metrics that has enveloped South Africa post-crisis,” Standard Chartered analyst Razia said after S&P’s statement, referring to the 2008/2009 crisis during which South Africa fell into recession. “The potential loss of South Africa’s hard-won investment grade rating, should serve as a wake-up call to try even harder to arrest this deterioration.”