S&P set to announce review on SA’s credit rating this week

Both Standard & Poor’s & Fitch have the country’s credit rating at one notch above junk status.

South Africa's financial centre in Sandton, Johannesburg. Picture: Aki Anastasiou.

JOHANNESBURG - It's widely expected that ratings agency Standard & Poor's will announce its review of South Africa's credit rating this Friday amid fears of a looming downgrade.

Both Standard & Poor's and Fitch have the country's credit rating at one notch above junk status.

The rand weakened against the dollar on Friday as credit ratings downgrade fears weighed on sentiment, coupled with subdued risk appetite globally as investors prepared for a likely hike in United States interest rates.

Moody's recently kept South Africa's credit rating unchanged at two notches above junk status, with a negative outlook.

Economist Dawie Roodt doesn't expect a downgrade just yet.

"And the reason why they won't downgrade us yet has to do with the recent judgment of the Constitutional Court, making it very clear that South Africa's institutions are still working quite well."

"So, Standard & Poor's may look at South Africa and say the economy is not growing that well. The fiscal situation is in really dire straits, but perhaps the political situation could be changing over the next couple of months," he says.

Economist Nazmeera Moola says Standard & Poor's could hold off on a downgrade for now.

But there's much to do to avoid a downgrade later this year.

"While there's a chance that they don't downgrade this week Friday, it doesn't mean we're off the hook. What they've done is we'd have gotten a little of extra time to deliver and we still need to deliver."

Africa's most advanced economy is expected to grow less than 1 percent this year, hobbled by low commodity prices, drought and political ructions that have unnerved investors.

Fitch has not given a date for its next rating decision, but Finance Minister Pravin Gordhan said that the review was expected on 8 June.

Standard & Poor's review was due to be published on 3 June.

The prospects of higher US interest rates after a string of Federal Reserve officials indicated that rates could rise as soon as June also hurt sentiment.

Last week, Moody's said it expects the banking system's non-performing loan ratio to rise to around 4 percent by the end of 2017 from 3.1 percent in December 2015 due to pressure on corporates and consumers from rising interest rates and inflation.

It also said profitability in the sector could come under strain due to waning demand for credit and lower business opportunities.