Moody\u2019s Investors Service cut South Africa\u2019s credit rating below investment grade, delivering the country a full house of junk assessments as it grapples with a nationwide lockdown to curb the spread of the novel coronavirus.<\/p>\n
It now assesses the nation\u2019s foreign- and local-currency debt at Ba1, one level below investment grade. The move reflects \u201ccontinuing deterioration in fiscal strength and structurally very weak growth,\u201d the company said in a statement Friday. The outlook on the rating remains negative.<\/p>\n
\u201cUnreliable electricity supply, persistent weak business confidence and investment as well as long-standing structural labour market rigidities continue to constrain South Africa\u2019s economic growth, Moody\u2019s said. \u201cAs a result, South Africa is entering a period of much lower global growth in an economically vulnerable position.\u201d<\/p>\n
The ratings company changed the outlook on the country\u2019s ratings to negative in November, saying it wants to see a credible strategy in the February budget for halting a deterioration in public finances. However, the spending plans presented by Finance Minister Tito Mboweni last month showed the fiscal deficit as a percentage of gross domestic product would widen to an almost three-decade high.<\/p>\n
\u201dThe decision by Moody\u2019s could not have come at a worse time,\u201d National Treasury said in a statement. \u201cSouth Africa, like many other countries, is seized with containing the outbreak of the coronavirus.\u201d<\/p>\n
\u201dThese two events will truly test South African financial markets,\u201d National Treasury said. \u201cThe government remains committed to implementing structural economic reforms to address the weak economic growth, constrained fiscus and the ailing state-owned companies.\u201d<\/p>\n
The nationwide lockdown that suspended all activity except essential services from Friday means the budget shortfall and the government\u2019s debt burden could deteriorate even further. Even before the lockdown, the central bank forecast that Africa\u2019s most-industrialised economy will contract for a calendar year for the first time since 2009.<\/p>\n
The downgrade leaves South Africa without an investment-grade rating for the first time in 25 years and will cause it to fall out of the FTSE World Government Bond Index, which could prompt significant capital outflows. It will also raise borrowing costs, complicating the government\u2019s efforts to narrow the budget gap.<\/p>\n
The nation\u2019s fiscal deficit will widen in fiscal 2020 to around 8.5% of GDP, as revenue declines this year, only narrowing very gradually thereafter, Moody\u2019s said. It estimates that the debt burden will reach 91% of GDP by fiscal 2023, inclusive of the guarantees to state-owned enterprises from 69% at end of fiscal 2019.<\/p>\n
S&P Global Ratings and Fitch Ratings cut South Africa to junk in 2017.<\/p>\n