Guiding consumers since 2009

Fitch ratings downgrades South Africa

By Jessica Anne Wood

Following from the sub-investment ratings downgrade by Standard & Poor’s (S&P) earlier this week, Fitch ratings agency has followed suit, downgrading South Africa’s foreign and local currency rating to junk status.

Explaining the decision, Fitch noted: “The downgrade of South Africa's Long-Term IDRs reflects Fitch's view that recent political events, including a major cabinet reshuffle, will weaken standards of governance and public finances.

“In Fitch's view, the cabinet reshuffle, which involved the replacement of the finance minister, Pravin Gordhan, and the deputy finance minister, Mcebisi Jonas, is likely to result in a change in the direction of economic policy. The reshuffle partly reflected efforts by the out-going finance minister to improve the governance of state-owned enterprises (SOEs). The reshuffle is likely to undermine, if not reverse, progress in SOE governance, raising the risk that SOE debt could migrate onto the government's balance sheet.”

The ratings agency added: “The new finance minister has stated that he does not intend to change fiscal policy and remains committed to expenditure ceilings that have been a pillar of fiscal consolidation. However, Fitch believes that following the government reshuffle, fiscal consolidation will be less of a priority given the president's focus on "radical socioeconomic transformation".

This means that renewed shortfalls in revenues, for example as a result of lower than expected GDP growth, are less likely to be compensated by expenditure and revenue measures. This could put upward pressure on general government debt, which at an estimated 53% of GDP at end-March 2017 was already slightly above the 'BB' category median of 51%.”

With two ratings agencies downgrading South Africa to sub-investment grade, it is likely that borrowing costs will increase. Furthermore, it may result in companies disinvesting from South Africa, as some mandates prevent companies from investing in sub-investment grade countries.

Ratings agency Moody’s is yet to announce its ratings decision for South Africa.

 Further reading:

 

Recent Articles

Featured How to choose the right loan for your unique needs

You may find yourself in a situation where you’d like to take out a loan. But did you know that there are different kinds of loans, and that one loan is not suitable in all instances?

Do this if your credit score is negatively impacted by creditor error

Let’s say you pay your monthly instalment at your local branch. But the payment, which went through on your side, didn't show up on your creditor’s side. So they may report you to the credit bureaus and your credit score can be negatively impacted.

A guide to saving after retirement

Everyone knows that saving for your retirement is good for many reasons, such as not having to depend on social grants or your family, and sustaining the quality of the life you’re leading.  However, many people think that once they retire there’s no need to continue saving. However, life doesn’t stop at retirement and you may still have decades of life to enjoy.

Try these ventures to earn a passive income

It’s sound financial sense to have more than one stream of income. By setting up a passive stream of income, you’ll earn more each month without having to dedicate too much extra time.

Deals

Get 10 pieces of chicken for R75 at KFC

Price: R75
When: Tuesdays
Where: Nationwide

Debonairs Get 2 for Iklipa Special

Price: R99.90
When: Daily
Where: Nationwide

Indaba Hotel Christmas Lunch Special

Price: R595
When: Until 25 December 2020
Where: Johannesburg


Latest Guide

Guide to debt rehabilitation solutions