Johannesburg - Fitch Ratings’ decision not to downgrade South Africa’s credit rating is “fair” given the global economic climate and the government’s commitment to its fiscal plan, the National Treasury said.
Fitch yesterday affirmed South Africa’s rating at BBB, the second-lowest investment grade level, and kept the outlook stable. South Africa’s credit risk has increased this year as investors increased speculation the nation’s debt may be downgraded for a second time because of slowing economic growth.
“Government’s fiscal framework is aimed at re-prioritising expenditure and revenue, while providing support to the economy and strengthening infrastructure investment,” the Treasury said in an e-mailed statement late yesterday.
Economic growth, which is forecast to slow to 1.8 percent this year, will probably recover to 2.8 percent next year and 3.5 percent in 2015, Fitch said.
The current-account deficit is projected to remain above 5 percent in the next two years, while government debt is set to peak at 48 percent of gross domestic product in 2015, it said.
The gap on the current account “leaves the country vulnerable to shifts in global liquidity, for example related to Fed tapering of its asset purchases,” Fitch said.
The US Federal Reserve announced yesterday it will cut its monthly bond purchases, which helped to prop up emerging markets’ currencies, by $10 billion to $75 billion.
The rand fell 0.3 percent to 10.3705 against the dollar as of 9:33 a.m. in Johannesburg.
Negative Outlooks
South Africa’s government “is committed to constantly making efforts to address the concerns identified in Fitch’s rating review,” the Treasury said.
Fitch was the last of three major rating agencies to downgrade South Africa’s rating in January.
Standard & Poor’s and Moody’s both have a negative outlook on the nation’s debt.
Almost half the time, government bond yields fall when a rating action suggests they should climb, or they increase even as a change signals a decline, according to data compiled by Bloomberg on more than 300 upgrades, downgrades and outlook changes since 1974 and through December 2012. - Bloomberg News