Tue, 24 Nov 2020

Fitch, Moody's downgrade South Africa

21 Nov 2020, 20:30 GMT+10

JOHANNESBURG, Nov. 21 (Xinhua) -- Credit rating agency Fitch and Moody's have both downgraded South Africa's credit ratings into junk status.

Fitch downgraded South Africa's Long-Term Foreign-Currency Issuer Default Rating (IDR) to BB- from BB while Moody's cut the country's foreign-and local-currency rating to Ba2 from Ba1. Both the two agencies remain the outlook negative.

In its report, Fitch cited the state increasing debt levels, stagnant economic growth and inequality levels as the main concerns.

"The pandemic has severely hit South Africa's economic growth performance, and GDP is expected to remain below 2019 levels even in 2022," Fitch report noted.

The report said growth was expected to increase in 2021, however it was concerned about the long-term effects of the pandemic in growth.

"Investment spending had already weakened in recent years, falling last year to the lowest level in real terms since 2012, reflecting challenges to the business environment such as the poor reliability of power supply, labor market inflexibility and subdued domestic demands," said Fitch.

Moody's said South Africa's fiscal position, the impact of the pandemic and economic problems were the main reasons behind its assessment.

"South Africa's capacity to mitigate the shock over the medium-term is lower than that of many sovereigns given significant fiscal, economic and social constraints and rising borrowing costs," Moody's said in a statement.

While President Cyril Ramaphosa in October unveiled an economic recovery plan, Fitch doubted the state ability to properly implement to due to a poor implementation track record.

Prof Jannie Rossouw, Head of School of Economic and Business Sciences at the University of the Witwatersrand, said the ratings meant that it would be more expensive for government to service its debt.

"It would be necessary to pay higher interest when the government borrows money," he said, adding that "even larger parts of the government's revenue will have to go into servicing debt."

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