JOHANNESBURG - Finance Minister Tito Mboweni on Friday reaffirmed the government’s commitment to structural reforms to address the country’s weak economic growth after Fitch dealt yet another blow to the country’s sovereign debt, lowering its long-term foreign-currency issuer default rating to BB from BB+ and assigning a negative outlook.
Rating agency Fitch cited the country’s lack of a clear debt stabilisation strategy, and the expected impact of the coronavirus on public finances and growth as some of the reasons for its latest review.
The news sent the rand plummeting, reaching R19.03 against the greenback on Friday evening.
Mboweni said the country’s problems were compounded by prevailing financial market stress emanating from the coronavirus and Moody’s recent downgrade more than a week ago.
He said the non-investment grade rating had undesirable implications for the economy.
“To assure all South Africans, the government is seized with addressing and minimising the impact of Covid-19; implementing measures to improve economic growth; and setting government finances on a sustainable trajectory,” Mboweni said. “This work requires close collaboration and co-
ordination across various sectors of the economy.”
However, Mboweni’s reassurances are unlikely to stem the rand’s expected weakening towards R20 and a massive sell-off by investors for safe havens.
The rand has weakened more than 30percent against the dollar after opening the year at R14.01 to the greenback.
Over the past seven days, the currency has weakened more than 6percent, while the dollar DXY index has climbed to 100.243 as the greenback firmed on safe haven and liquidity demands.
Peregrine Treasury Solutions’s Bianca Botes said the rand fell as the steep sell-off of emerging markets continued on the Covid-19 fallout that had left countries with poor fiscal metrics, such as South Africa, vulnerable.
“The reasons cited are no surprise and in line with what markets already knew - weak economic growth and a deteriorating fiscal position,” Botes said. “The announcement by Fitch, following last week’s announcement by Moody’s, comes as yet another hard blow to the local economy that is already under severe strain.”
On Friday, the country’s indices also took a hit, with the banking index falling 2.79percent to 4859 points, retailers retreating 1.4percent to 3008.99 points, while resources eased 1percent to 21088.79 points, and mining 0.86percent to 35258.30 points.
FirstRand fell 4.33percent to R37.35, Absa fell 4.1percent to R73.48, Nedbank 3.52percent to R82.61 and Standard Bank 1.47percent to R100.
“King Dollar is still considered as a destination of safety despite the horrible economic data from the US,” said FXTM’s Lukman Otunuga.
“There is also a sentiment that if things are this bad in the largest economy in the world, how bad are things across the globe.”
Anchor Capital’s Nolan Wapenaar said the rand had been dealt a double blow by external shocks as two phenomena had taken place outside of South Africa.
“The first thing that is happening is that people are still feeling nervous about the coronavirus, and the dollar is strengthening,” Wapenaar said.
“What we are seeing is that people are scared of emerging markets, while currencies and bonds have all come under pressure. South Africa is taking a cue from currencies in countries like Turkey and Russia,” he said.