Tuesday 05, December 2017 by Matthew Amlôt

S&P: South Africa ratings lowered on weakening economic and fiscal trajectory; outlook stable

On Nov. 24, 2017, S&P Global Ratings lowered its long-term foreign currency sovereign credit rating on the Republic of South Africa to 'BB' from 'BB+' and affirmed the 'B' short-term foreign currency sovereign credit rating. The outlook is stable.

“At the same time, the long-term local currency sovereign credit rating was lowered to 'BB+' from 'BBB-' and the short-term local currency sovereign credit rating was lowered to 'B' from 'A-3'. The outlook is stable.

“We also lowered the long-term South Africa national scale rating to 'zaAA+' from 'zaAAA' and affirmed the short-term national scale rating at 'zaA-1+'.

“The downgrade reflects our opinion of further deterioration of South Africa's economic outlook and its public finances. In our view, economic decisions in recent years have largely focused on the distribution--rather than the growth of--national income. As a consequence, South Africa's economy has stagnated and external competitiveness has eroded. We expect that offsetting fiscal measures will be proposed in the forthcoming 2018 budget in February next year, but these may be insufficient to stabilize public finances in the near term, contrary to our previous expectations.

“The stable outlook reflects our view that South Africa's credit metrics will remain broadly unchanged next year. It also speaks to our view that political instability could abate following the party congress of the governing African National Congress (ANC) in December 2017, helping the government to focus on designing and implementing measures to improve economic growth and stabilize public finances.

“Downside pressure on the ratings could develop if economic performance and fiscal outcomes deteriorate further from our forecasts. Further pressure on South Africa's standards of public governance, for example in our perception of a threat to the independence of the central bank, could also cause renewed downward pressure.

“We could raise the ratings if economic growth or fiscal outcomes strengthen in a significant and sustained manner compared with our base case. Upside ratings pressure could also rise if risks of a marked deterioration in external funding sources were to subside, in our view, and external imbalances decline.

“Upward pressure on the ratings could also develop were policy makers to introduce economic reforms to benefit job creation, competitiveness, and economic growth.”

  

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