Johannesburg – Standard & Poor’s rating agency this evening affirmed SA’s sovereign debt rating at one notch above junk, giving the country some breathing space.
This is the second time a ratings agency has paused on downgrading SA’s rating after Moody’s last year left its rating unchanged at two levels above junk.
Should South Africa have been downgraded to junk, encouraging foreign investment and securing loans on the international market would have become more difficult, placing further pressure on an economy that is slowing and is only expected to grow at less than a percent this year.
In a statement issued on Friday evening, the ratings agency notes that low gross domestic product growth is putting South Africa's economic metrics at risk and could eventually weaken the government's social contract with business and labour.
In addition, it says, rising political tensions are accentuating vulnerabilities in the country's sovereign credit profile.
Despite this S&P’s notes energy sector improvements will likely reduce some of the economic bottlenecks and pending finalisation of labour and mining reforms could engender a positive confidence shock.
“On the fiscal side, the government is showing greater resolve to reduce fiscal deficits at a faster pace than we expected.”
Earlier this week, Finance Minister Pravin Gordhan said the country had done all it could to avert a ratings downgrade and had been working with business to avoid such an eventuality.
Fitch has still to provide its assessment of the economy and will announce whether it will downgrade SA later this month. Fitch currently has SA a notch above junk status.
In its statement, S&P’s noted SA’s outlook remains negative, “reflecting the potential adverse consequences of low GDP growth and signalling that we could lower our ratings on South Africa this year or next if policy measures do not turn the economy around”.
Some analysts and economists had expected SA’s rating to remain unchanged for now, with the country being given six months of breathing space.
The effect of S&P’s decision on the JSE will only be seen on Monday, as it was announced after most of the trade had ceased for the weekend. However, the rand could still move in response to the news over the weekend.
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