Fitch Ratings revised the Outlooks on South Africa’s Outlook to Negative from Stable, while affirming the Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at ‘BBB-‘, it said on Friday.<\/p>\n
“The issue ratings on South Africa’s senior unsecured long-term foreign- and local-currency bonds have also been affirmed at ‘BBB-‘. The Country Ceiling has been affirmed at ‘BBB’.<\/p>\n
The Short-Term Foreign and Local Currency IDRs and the issue ratings on senior unsecured short-term local currency securities have been affirmed at ‘F3’.<\/p>\n
The rating on the RSA Sukuk No. 1 Trust has also been affirmed at ‘BBB-‘, in line with South Africa’s Long-Term Foreign Currency IDR.”<\/p>\n
Download the full statement<\/a><\/strong><\/p>\n The revision of the outlooks on South Africa’s long-term IDRs to negative was driven by factional battles within the ANC, government debt, debt from state-owned enterprises (SOEs) and low GDP growth.<\/p>\n “The in-fighting within the ANC and the government is likely to continue over the next year.”<\/p>\n In Fitch’s view, this will distract policymakers and lead to mixed messages that will continue to undermine the investment climate, thereby constraining GDP growth.<\/p>\n It noted that while the economy may have started recovering from a series of shocks, business confidence remains depressed and investment has continued to contract.<\/p>\n “We expect only modest GDP growth of 1.3% in 2017 and 2.1% in 2018, although this is an improvement from 0.5% in 2016.”<\/p>\n The economy had been hit in 2015 and 2016 by electricity shortages, the worst drought in decades, a sharp fall in international prices for some of South Africa’s main mining commodities and rising policy uncertainty.<\/p>\n South Africa dodged a downgrade to \u201cjunk status\u201d in both May and June. Rating agencies have been sympathetic towards South Africa\u2019s current lack of economic growth<\/a>, influenced by weak external demand, which has had an impact on exports, as well as the drought, said Renier de Bruyn, equity analyst at Sanlam Private Wealth.<\/p>\n A credit rating reflect the borrower\u2019s credit worthiness<\/a>. That is the likelihood that the borrower will pay back a loan within the confines of the loan agreement, without defaulting, explained Mampho Modise, a post graduate researcher at the University of Pretoria.<\/p>\n Junk status is associated with high risk and therefore, high borrowing costs. This is the main reason why a sovereign has to avoid being downgraded into a junk, or sub-investment grade, Modise stated in an interview published by The Conversation.<\/p>\n