Monday, 11 December, 2017

Fitch reaffirms SA's sub-investment grade status

S&P downgrades South Africa as rand slides Global credit ratings agency has downgraded South Africa to junk status
Juana Turner | 26 November, 2017, 01:05

"In our view, economic decisions in recent years have largely focused on the distribution-rather than the growth-of national income", it added. "If both Moody's and S&P downgraded South Africa's local currency debt to junk‚ South African bonds would fall out of the Citigroup's World Government Bond Index (WGBI)‚ causing large global tracker funds to sell out of their holdings of such bonds‚" said Matthews.

In a crunch week for the three major credit ratings agencies‚ Fitch's outlook comes a day before S&P Global Ratings and Moody's are scheduled to make announcements.

Fitch downgraded South Africa weeks after the firing of Pravin Gordhan as finance minister. Another rating agency, Moody's, put South Africa on its watch-list for a possible downgrade.

"The 2018 budget will outline decisive and specific policy measures to strengthen the fiscal framework", the finance ministry said in a statement, without giving more detail, Reuters reported.

South African Minister of Finance Malusi Gigaba last month slashed the country's GDP growth forecast for this year from 1.3 percent to just 0.7 percent, and revealed that by 2020, 15 percent of government revenue would be eaten up by debt repayment.

"Downgrades to sub-investment grade could trigger forced selling of up to as $14bn of outflows‚ according to the Bank of America".

Thirteen of 25 economists surveyed on Monday said either S&P Global Ratings or Moody's was likely to cut the local currency rating to junk on Friday.

But it said that the rating could come under further pressure if standards of public governance slipped, such as more perceived attacks on the South African Reserve Bank's independence.

"Granted, it's not as bad as a downgrade from both rating agencies might have been, but it is not much better either", Khan said.

S&P Global Ratings on Friday lowered South Africa's credit rating to "BB" from 'BB+', citing the country's "weakening" economic and fiscal trajectory.

It is to provide more information in a budget that is scheduled to be released in February.

South African debt has already been dropped from one of the widely used global bond indexes, the JPMorgan Emerging Market Bond Index Global according to Matthews.

Fitch ratings agency's decision on Thursday, to maintain South Africa's long-term foreign and local currency debt rating at BB+ has given the country a chance to address issues in a manner that will see an upward revision in its ratings, National Treasury said.

South Africa's government is mulling fiscal reform aimed at improving economic growth and budget prospects as investors and businesses are losing faith in the failing economy. Moody's holds South Africa local and foreign issued debt at one rung above junk.

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