2014 saw South Africa suffer credit rating cuts from two of the three top ratings agencies in the world – with the outlook for 2015 not looking very positive.
Moody’s – Baa2/BBB (Stable)
Ratings agencies Moody’s and Standard & Poor’s both saw it fit to cut South Africa’s credit rating during the course of this year, with Fitch affirming its stance on the country’s sovereign debt, but with a negative outlook.
Moody’s cut South Africa’s rating, having downgraded the country one notch to Baa2 status (equivalent to BBB).
The cut came primarily due to a widening budget deficit, as reported by Stats SA earlier in the year – but the group holds a stable outlook for the economy due to the government’s commitment to “fiscal discipline”.
Standard & Poor’s Baa1/BBB- (Stable)
Standard & Poor’s in June cut the country’s sovereign debt levels by one notch, to the level just above “junk” status, at Baa2 – the lowest rating of all agencies.
Junk status alludes to speculative, high-yield or non-investment grade bonds, which run a higher risk of defaulting.
Broadly speaking, credit ratings are an assessment of a country’s ability to repay its debts – and junk status would make it impossible for institutions such as pension funds to be able to buy South African bonds.
Junk status would very likely dissuade foreign investment, and leave the country struggling to pay its bills as interest rates on existing debts rise.
The rationale behind S&P’s cut had mainly to do with labour issues within the country for a large part of the year, as well as failure to show economic growth.
“The downgrade reflects our expectation of lackluster GDP growth in South Africa, against a backdrop of relatively high current account deficits, rising general government debt, and the potential volatility and cost of external financing,” it said at the time.
On 12 December, S&P affirmed its rating for South Africa, saying it expects a better economic performance in 2015.
Fitch – BBB/Baa2 (Negative)
The only agency not to cut South Africa’s rating this year was Fitch, which affirmed the country’s rating at BBB, but with a negative outlook.
Fitch’s negative outlook was also based on the platinum mine strike and slow economic growth.
The rating was again affirmed (along with the negative outlook) on 12 December.
GDP data released by Stats SA shows that the South African economy did not improve much by the third quarter of the year, putting the country on shaky ground for 2015.
- Q1 GDP contracted 0.6%
- Q2 GDP grew 0.5%
- Q2 GDP grew 1.3%