Fitch downgrades South Africa to junk status
Fitch's view was that the recent Cabinet reshuffle, which involved the replacement of the finance minister, Pravin Gordhan, and the deputy finance minister, Mcebisi Jonas, was likely to result in a change in the direction of economic policy.
On Friday, South Africa’s Long Term Foreign and Local Currency Issuer Default Ratings (IDRs) were downgraded by Fitch Ratings from BB+ to BBB-, however, the outlooks remained stable.
In a statement, Fitch Ratings said, “The downgrade of South Africa’s Long-Term IDRs reflects Fitch’s view that recent political events, including a major cabinet reshuffle, will weaken standards of governance and public finances.
“In Fitch’s view, the cabinet reshuffle, which involved the replacement of the finance minister, Pravin Gordhan, and the deputy finance minister, Mcebisi Jonas, is likely to result in a change in the direction of economic policy. The reshuffle partly reflected efforts by the outgoing finance minister to improve the governance of state-owned enterprises (SOEs).
“The reshuffle is likely to undermine, if not reverse, progress in SOE governance, raising the risk that SOE debt could migrate onto the government’s balance sheet.”
Fitch Ratings further pointed to “differences over the country’s expensive nuclear programme” which preceded the dismissal of Nhlanhla Nene, the previous finance minister, which the ratings agency said he believed was the decision for the Cabinet reshuffle, and it was thought that the programme was “likely to move relatively quickly” under the new Cabinet.
“The state-owned electricity company, Eskom, has already issued a request for information for nuclear suppliers and is expected to issue a request for proposals for nuclear power stations later this year. The treasury under its previous leadership had said that Eskom could not absorb the nuclear programme with its current approved guarantees, so the treasury will likely have to substantially increase guarantees to Eskom.
The Ratings Agency further pointed to tensions within the ANC and said this “will mean that political energy will be absorbed by efforts to maintain party unity and fend off leadership challenges and to placate rising social pressures for addressing inequality, poverty and weak public service delivery.”
Fitch Ratings said a key assumption was that “global economic trends and commodity prices to develop as outlined in Fitch’s March Global Economic Outlook.”
– Caxton News Service
