South Africa fell deeper into junk territory after Moody\u2019s Investors Service joined Fitch Ratings in lowering the country\u2019s credit ratings on Friday.<\/p>\n
Moody\u2019s cut the nation\u2019s foreign- and local-currency ratings to Ba2, two levels below investment grade, from Ba1. The outlook remains negative.<\/p>\n
Fitch cut the nation\u2019s foreign- and local-currency ratings to BB-, three levels below investment grade, from BB, also with a negative outlook.<\/p>\n
\u201cThe key driver behind the rating downgrade to Ba2 is the further expected weakening in South Africa\u2019s fiscal strength over the medium term,\u201d Moody\u2019s said in a statement.<\/p>\n
Fitch said in a separate release that \u201cthe pandemic has severely hit South Africa\u2019s economic growth performance, and GDP is expected to remain below 2019 levels even in 2022.\u201d<\/p>\n
Only five of 23 economists surveyed by Bloomberg predicted Moody\u2019s to cut the rating.<\/p>\n
The coronavirus pandemic exacerbated the deterioration of South Africa\u2019s government finances because it weighed on revenue collection, raised the cost of borrowing and pushed the economy into its longest recession in almost three decades.<\/p>\n
Government Salaries<\/strong><\/p>\n Finance minister Tito Mboweni\u2019s medium-term budget last month showed plans to pare the government salary bill, which has surged 51% since 2008, as part of an effort to start bringing the government debt trajectory down after 2026.<\/p>\n The proposed wage freeze risks a backlash from politically influential labor groups that are already in a legal battle with the government to honor an agreed pay deal.<\/p>\n If state salaries can\u2019t be cut, there\u2019s limited room for offsetting measures in other expenditure areas.<\/p>\n \u201cA recovery is on the way as the lockdown was gradually eased during the third quarter and we expect GDP will contract by 7.3% in 2020,\u201d Fitch said.<\/p>\n South Africa\u2019s government debt affordability, measured as the portion of revenue needed to cover interest payments, will deteriorate to 25% in the medium term, according to Moody\u2019s.<\/p>\n S&P on Friday kept its assessment of South Africa\u2019s foreign-currency debt three levels below investment grade, with a stable outlook.<\/p>\n
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