Rating agency downgrades long term foreign currency rating

Standard & Poor’s (S&P) announced last week that it had cut South Africa’s long term foreign currency credit rating from “BBB+” to “BBB” and the long term local currency credit rating from “A” to “A-”.


The S&P downgrade comes after Moody’s Investors Service downgraded the country’s sovereign rating from A3 to Baa1 in September.


The global credit rating agency gave the following reasons for the downgrade:


1.    The recent strikes in the mining sector were likely to feature in political debates in the run up to the 2014 general elections and thereby increase policy uncertainty;
2.    Underlying social tensions may result in amplified spending pressures, thereby undermining the fiscal consolidation path; and
3.    It also said the weaker business investment climate may weigh on South Africa’s economic growth prospects.


National Treasury said Cabinet had approved the fiscal framework for the next three years and that the deals will be announced by the Minister of Finance on 25 October 2012. Treasury said its fiscal framework continued to be guided by counter cyclicality, debt sustainability and intergenerational equity.


“We believe our fiscal plan is realistic and achievable. There is no historical evidence to support S&P’s assertion that “...underlying social tensions will increase government spending pressure...” Indeed our young democracy has seen several elections within the ruling party and government. None of these have impacted policy and budgeting in the manner that S&P suggests,” said Treasury in a statement.


It added that Government would continue to invest in infrastructure and that it was working with all parties to bring about an immediate end to the wildcat strikes.