S&P downgrades South Africa to junk status

S&P downgrades South Africa to junk status

Rating agency Standard & Poor's (S&P) has downgraded the country's sovereign credit rating to junk status, citing political uncertainty as the main reason.

Standard Poors

It has also adjusted the outlook to negative. 


"In our opinion, the executive changes initiated by President [Jacob] Zuma have put at risk fiscal and growth outcomes," S&P said in a statement.


S&P lowered its long-term foreign currency sovereign credit rating on the Republic of South Africa to 'BB+' from 'BBB-' and the long-term local currency rating to 'BBB-' from 'BBB'.


A credit rating of BB or lower by S&P is considered junk status.


"The downgrade reflects our view that the divisions in the ANC-led government that have led to changes in the executive leadership, including the finance minister, have put policy continuity at risk. This has increased the likelihood that economic growth and fiscal outcomes could suffer. The rating action also reflects our view that contingent liabilities to the state, particularly in the energy sector, are on the rise, and that previous plans to improve the underlying financial position of Eskom may not be implemented in a comprehensive and timely manner," said S&P.

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The ratings agency said South Africa's pace of economic growth remains a ratings weakness. 


"It continues to be negative on a per capita GDP basis. While the government has identified important reforms and supply bottlenecks in South Africa's highly concentrated economy, delivery has been piecemeal in our opinion. The country's longstanding skills shortage and adverse terms of trade also explain poor growth outcomes, as does the corporate sector's current preference to delay private investment, despite high margins and large cash positions," added S&P.


S&P said it could revise the outlook from negative to stable if it sees political risks reduce and economic growth and/or fiscal outcomes strengthen compared to its baseline projections.


"The negative outlook reflects our view that political risks will remain elevated this year, and that policy shifts are likely which could undermine fiscal and growth outcomes more than we currently project."

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