Timing of Fitch downgrade ‘came as a shock’ – economist
Econometrix chief economist Azar Jammine says the timing of the announcement by credit ratings agency Fitch, that it had downgraded South Africa further into ‘junk’ status, came as a shock.
Jammine says despite the fact that the announcement came out of the blue, the actual decision to cut the credit ratings to two levels below investment grade was no surprise.
Fitch's decision came a week after Moody’s came the last of the big three agencies to downgrade South Africa to junk status.
ALSO READ: AU sets up regional coronavirus task forces
"This is not surprising, but what did come as a shock was that it came this last Friday. Unlike Moody's, Fitch does not disclose when it will divulge its credit review, so I don't think the markets expected such an early review.
"But the fact that they had already placed us on a negative outlook back in November, following the awful increase in the budget deficit incorporated into the medium-term budget policy statement, made it likely that they would downgrade us into junk status."
Jammine says of further concern is the fact that Fitch has kept South Africa on a negative outlook. This means there is a risk of a further downgrade in the next 18 months.
He warns that the impact of the Covid-19 pandemic will result in a shortfall in government revenue.
"All that whilst government revenue is going to fall, government expenditure is going to remain very high, which means the budget deficit is going to balloon."