S&P further downgrades long-term Currency Rating, but stops one Notch above Junk-Status

South Africa has dodged the junk bullet after S&P Global kept the foreign currency rating one notch above sub-investment grade, but lowered the long-term local currency ratings. The ratings agency affirmed all other foreign currency ratings with a negative outlook. That means South Africa remains one notch above junk status.

“We affirmed the long- and short-term foreign currency ratings at ‘BBB-/A-3’. The outlook on the long-term ratings remains negative,” S&P said in a statement on its website. The rand firmed sharply from an overnight close of R14.10 to the greenback and held steady at around R13.93/$ ahead of the S&P announcement.

Prior to the announcement, ANC treasurer general Zweli Mkhize said SA doesn’t deserve a ratings downgrade by S&P, explaining that in his view South Africa had not declined so much over the last couple of months to deserve a credit ratings downgrade. S&P cautioned that South Africa continues to depend on resident and nonresident purchases of rand-denominated local currency debt to finance its fiscal and external deficits. “Its financing needs have risen beyond our previous expectations, with general government debt set to increase by an average of 4.9% of GDP over 2016-2018, to reach gross debt of 54% of GDP in 2019. “The proportion of rand in global foreign exchange turnover has also declined to just below 1% on average over the past three years.”

S&P said it also believes political events have distracted from growth-enhancing reforms, while low GDP growth continues to affect South Africa’s economic and fiscal performance and overall debt stock.
“We are therefore lowering our long-term local currency rating on South Africa to ‘BBB’. We are affirming all other ratings. “The negative outlook reflects the potentially adverse consequences of persistently low GDP growth for the public balance sheet.”

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