South Africa could fall deeper into junk territory after S&P Global Ratings cut the outlook on its assessment of the nation\u2019s debt to negative, citing the slow growth, upwardly revised fiscal deficit and growing debt burden.<\/p>\n
S&P left unchanged South Africa\u2019s rating of BB, two steps below investment grade.<\/p>\n
\u201cWe could lower the ratings if we were to observe continued fiscal deterioration,\u201d S&P said in a statement.<\/p>\n
South Africa\u2019s finances are deteriorating due to billions of dollars in bailouts for unprofitable power producer Eskom Holdings SOC Ltd.<\/p>\n
Gross government debt is set to surge to 80.9% of gross domestic product by fiscal 2028 unless urgent action is taken, the National Treasury said last month.<\/p>\n
The trajectory is almost 20 percentage points higher than forecast in the February budget and shows no sign of stabilizing.<\/p>\n
Sixteen of 22 economists surveyed by Bloomberg predicted the move.<\/p>\n
Another cut means it will take South Africa even longer to regain its investment-grade status at S&P, the first major ratings company to cut the nation to junk in 2017 after former president Jacob Zuma replaced the finance minister in a late-night cabinet shake-up.<\/p>\n
The nation is now led by Cyril Ramaphosa.<\/p>\n
Moody\u2019s lowered the outlook on its investment grade rating to negative less than three weeks ago, effectively giving the nation three months to get its finances in order.<\/p>\n
A Moody\u2019s downgrade would force South Africa out of the FTSE World Government Bond Index, which could prompt a sell-off and outflows of as much as $15 billion, according to Bank of New York Mellon Corp.<\/p>\n
It will also raise borrowing costs and make it even more difficult for government to finance the budget.<\/p>\n
Here\u2019s what analysts had to say:<\/p>\n
Daniel Tenengauzer, head of markets strategy at BNY Mellon in New York: \u201cI don\u2019t think it makes a big difference,\u201d Tenengauzer said. \u201cThe only thing that could move the rand from here would be an actual downgrade\u201d.<\/p>\n
\u201cIt\u2019s important to keep in mind that Moody\u2019s clearly is the more critical because it could trigger the WGBI exit. Having said that, if the spread between S&P and Moody\u2019s widens too much, that obviously should push Moody\u2019s in that direction as well\u201d<\/p>\n
Razia Khan, chief economist for Africa and the Middle East at Standard Chartered Bank Plc in London: The market impact \u201cshould be negligible,\u201c because it was so widely expected, she said.<\/p>\n
At the same time, though, \u201cit does provide important political cover to both the Ramaphosa administration, and to the Treasury in particular, to pursue faster fiscal and structural reform\u201d.<\/p>\n
Brendan McKenna, a currency strategist at Wells Fargo in New York: S&P\u2019s decision \u201cprobably doesn\u2019t impact the currency all that much just given S&P\u2019s credit rating is already non-investment grade,\u201d he said. There\u2019s a small risk, though, that it influences Moody\u2019s Investors Service to downgrade the nation as well.<\/p>\n