JOHANNESBURG - Standard and Poor’s (S&P) has downgraded South Africa’s sovereign credit ratings further deep into sub-investment territory as the impact of the coronavirus (Covid-19) on the economy weighed in.
However, the agency revised the country’s outlook to stable from negative.
On Wednesday evening, S&P lowered South Africa’s long term foreign and local currency debt ratings further into non-investment grade to ‘BB-’ and ‘BB’ respectively.
According to S&P, the downgrade was a result of Covid-19 related pressures that would have significant adverse implications for South Africa’s already deficient growth and fiscal outcomes.
The South African government has announced a fiscal package amounting to R500 billion, a portion of which would be made of loans from international financial institutions.
S&P said it expected South Africa’s headline fiscal deficit to widen to 13.3 percent of gross domestic product (GDP) in 2020.
It said this would lead to net debt levels rising to over 75 percent of GDP by the end of this year.
"Our anticipation of an only tepid economic recovery means that public financing needs will likely remain elevated throughout the forecast period,” it said.
“As a result, the debt-to-GDP ratio is unlikely to stabilise within this timeframe, rising to 84.7 percent by 2023, raising questions around debt sustainability."
S&P said the stable outlook reflected the balance between pressures related to very low GDP growth and high fiscal deficits against the country’s deep financial markets and monetary flexibility.
In a statement, National Treasury said the government was disappointed by S&P’s decision which came at a time when the country was facing one of its most challenging times.
Treasury, however, said the government considered the revision of the outlook as an indication that the agency at least recognized some fiscal and monetary policy measures as strong points.
“Government continues to prioritise measures announced by President Cyril Ramaphosa aimed at containing the spread of the virus and further acknowledges the negative impact Covid-19 has had on economic activity,” it said.
“Now, more than ever, structural reforms need to be urgently implemented in order to get the economy moving in the right direction.”
Treasury said tough decisions had to be made and collaboration between government, business, labour and civil society remained vital in order to contain the spread of Covid-19 and ensure sustainable economic recovery.