South Africa’s local-currency debt rating dropped by one level as Fitch Ratings recently updated its Sovereign Rating Criteria. The downgrade was aimed at bringing the debt rating in line with the nation’s foreign-currency rating.
“Fitch Ratings recently updated its Sovereign Rating Criteria, which is the methodology it uses to rate all sovereigns. Following the publication of the updated methodology, the agency then held a Sovereign Portfolio Review Committee of all its existing sovereign ratings on Tuesday 19 July 2016,” explained Treasury.
The review aimed at addressing the relationship between ‘existing rating of long-term local and foreign currency debt in line with the guidelines in the updated criteria.’
“The revised guidelines by the agency reflect their assessment that the credit risk profile of sovereign local and foreign currency debt should be closely aligned. As a result of the above change in approach, the agency has aligned South Africa’s long-term local currency rating to the long-term foreign currency rating at ‘BBB-’ with a stable outlook,” Treasury stated.
This comes as the rand reportedly strengthened by ‘0.5% to R14.2856 per dollar by 07:51 on Tuesday, ending two days of declines.’
Treasury further added that although this course of action was for the purpose of alignment, ‘it also serves as a timely reminder of the risks of a downgrade that lie ahead and the urgency of actions required to reinvigorate the economy.’
It has reiterated the need for government, business and labour to double their efforts in working together to improve growth prospects and create more opportunities, added Treasury. “The National Development Plan and the nine-point plan already identified some of the reform measures that, if we continue to implement diligently, will alter our fortunes in the period ahead.”
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