South Africa downgraded to junk status again - this time by Fitch
International credit ratings agency Fitch Ratings has downgraded South Africa to 'BB+' from 'BBB-'.
This is equivalent to junk status.
Fitch did however adjust the outlook to stable.
It says the move reflects its view that recent political events, including the major cabinet reshuffle, will weaken standards of governance and public finances.
"In Fitch's view, the cabinet reshuffle, which involved the replacement of the finance minister, Pravin Gordhan, and the deputy finance minister, Mcebisi Jonas, is likely to result in a change in the direction of economic policy. The reshuffle partly reflected efforts by the out-going finance minister to improve the governance of state-owned enterprises (SOEs). The reshuffle is likely to undermine, if not reverse, progress in SOE governance, raising the risk that SOE debt could migrate onto the government's balance sheet," says Fitch in a statement.
ALSO READ: S&P downgrades South Africa to junk status
Fitch says the differences over South Africa's expensive nuclear programme preceded the dismissal of a previous finance minister Nhlanhla Nene in December 2015. In their view the proposed nuclear deal may also have contributed to the recent reshuffle.
"Under the new cabinet, including a new energy minister, the programme is likely to move relatively quickly. The state-owned electricity company, Eskom, has already issued a request for information for nuclear suppliers and is expected to issue a request for proposals for nuclear power stations later this year. The treasury under its previous leadership had said that Eskom could not absorb the nuclear programme with its current approved guarantees, so the treasury will likely have to substantially increase guarantees to Eskom," says Fitch.
ALSO READ - Junk Status: How the credit rating downgrade affects your pocket
Fitch says the tensions within the ANC will mean that political energy will be absorbed by efforts to maintain party unity and fend off leadership challenges and to placate rising social pressures for addressing inequality, poverty and weak public service delivery.
"The treasury's ability to withstand departmental demands for increased spending may also weaken."