S&P: Likely policy shifts left no choice on SA downgrade decision

The agency says it now rates the country at BB+, citing the pace of economic growth as a major concern.

FILE: Credit rating agency Standard & Poor's. Picture: AFP

JOHANNESBURG – Standard & Poor’s Global (S&) says it’s concerned that policy shifts are likely this year along with political risks and it, therefore, was left with no choice but to reduce South Africa’s credit rating to junk status.

The agency says it now rates the country at BB+, citing the pace of economic growth as a major concern.

Ratings agencies had given strong warnings that the political situation in the country needed to stabilise as the country’s sovereign rating was bordering on junk status.

However, after last week’s Cabinet reshuffle, S&P Global apparently met at the weekend to discuss the latest developments.

Nedbank Economist Isaac Matshego says: “If a second rating agency downgrades us to non-investment grade, which by the way is likely to happen, taking into account state Fitch’s statement on Friday, we’re going to be in trouble.”

The agency says various state-owned entities, including the South African National Roads Agency Limited, South African Airways and Eskom, still remain a concern.

However, S&P Global says their outlook could be revised to stable if concerns at these state-owned enterprises are addressed, political risk is reduced and economic growth strengthens.

MOODY’S PLACE SA ON REVIEW

Moody’s ratings agency placed South Africa's sovereign credit rating on review for downgrade on Monday, saying that the decision was prompted by an abrupt change in leadership of key government institutions.

South Africa’s sovereign is currently two notches above non-investment grade at Baa2.

The review will allow Moody’s to assess these risks and if the changes in leadership signals a weakening in the country's institutional, economic and fiscal strength.

South Africa’s (P) Baa2 Senior Unsecured Shelf and MTN program ratings were also placed under review for downgrade, as was the (P)P-2 Senior Unsecured Short-Term rating.

The country’s long-term local-currency bond and bank deposit country ceiling remain unchanged at A1. The long-term foreign-currency bond and bank deposits country ceilings remain unchanged at A2 and Baa2, respectively.

TREASURY ON DOWNGRADE

Treasury has given its first reaction to Standard & Poor’s (S&P) Global’s decision to downgrade South Africa to junk status.

Fears of a downgrade were raised last week already, when President Jacob Zuma announced his Cabinet reshuffle, in which Pravin Gordhan was axed.

S&P says in its opinion, the executive changes initiated by Zuma have put at risk fiscal and growth outcomes.

Treasury released a statement on Monday evening, saying it’s noted the downgrade.

It says newly installed Finance Minister Malusi Gigaba will hold a briefing.

Treasury says it's committed to a stable fiscal policy after rating agency S&P Global announced South Africa's downgrade to junk status citing the recent political developments.

In its statement, Treasury says while the leadership of the finance portfolio has changed, government's overall policy orientation remains the same.

It goes on to say South Africa is committed to a predictable and consistent policy framework, which responds to changing circumstances in a measured and transparent fashion.

Spokesperson Mayihlome Tshwete says: “The issues that they have raised are matters around the political matters. The minister will be announcing the interventions he is going to be making to try and resolve or stabilise the concerns that they have brought up.”

(Edited by Leeto M Khoza)