S&P changes South Africa’s outlook to negative, but no downgrade

Ratings agency S&P Global, which downgraded South Africa to sub-investment grade – commonly known as junk status – in November 2017 along with fellow ratings agency Fitch, changed South Africa’s sovereign credit rating to negative on Friday evening.

Low GDP growth; rising fiscal deficits; weak economic expansion; an ever-growing government debt burden; and massive contingent liabilities, caused by factors such as struggling power utility Eskom’s situation, were the reasons cited for the move.

The good news, however, is that the agency did not downgrade South Africa any further, with our long-term foreign currency rating remaining at BB and our long-term local currency rating at BB+.

This after the agency warned that yet another downgrade may be on the cards.

At the Consumer Goods Council Summit in Johannesburg earlier in November, Konrad Reuss, S&P’s MD for sub-Saharan Africa, said South Africa may be downgraded again later in the month.

He cited his reason being the doom and gloom laid out by Finance Minister Tito Mboweni during his mid-term budget speech, in which he did not mince words about the economic trajectory South Africa was on, or about the consequences if we did not reverse this path.

“There will certainly be a very controversial committee discussion because at this point we have a new medium-term budget policy statement (MTBPS) with a lot of bad news but with very little action or action plan,” Reuss said, according to Business Day.

While we escaped further downgrading on Friday, S&P warned that they may still lower the rating in the near future, if our fiscus deteriorates further because of higher pressure on spending, rising interest costs, or the “crystallization of contingent liabilities related to state-owned enterprises, especially Eskom”.

“We could also consider lowering the ratings if the rule of law, property rights, or enforcement of contracts were to weaken significantly, undermining the investment and economic outlook. We currently view this as unlikely,” the agency added.

Citing the reasons it did not downgrade us further, S&P did list some good news.

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