South Africa has received a ‘double bill of ratings downgrades’ from both Moody’s Investors Service and Fitch Ratings, according to BusinessLive.
It said that within a few minutes of the decisions, the rand moved from being 0.5% firmer on the day to 0.18% weaker at R15.4253/$.
Both agencies maintained their negative outlook, with Moody’s placing South Africa at two notches into junk, and Fitch moving the country’s economy three notches below investment grade.
S&P Global was the only major ratings agency to give South Africa a reprieve on Friday when it maintained both its rating and outlook. The agency has the country’s long-term foreign currency rating three rungs below investment grade, with a stable outlook.
The report quoted Moody’s as saying that the driver behind its downgrade was the further expected decline in South Africa’s fiscal strength over the medium term, warning that its capacity to mitigate the shock of the Covid-19 pandemic was lower than that of many countries ‘given significant fiscal, economic and social constraints and rising borrowing costs’.
‘In recent years, the government’s strategy has rested on structural reforms to promote medium-term growth as well as on fiscal consolidation. However, while the strategy remains in place, implementation risks have risen materially,’ Moody’s said.
Fitch meanwhile said its downgrade and negative outlook reflected rising government debt, ‘exacerbated by the economic shock triggered by the pandemic. SA’s low trend growth and high inequality will continue to complicate fiscal consolidation efforts’.
Fitch was sceptical of the government’s economic reconstruction and recovery plan (ERRP), launched in October in a bid to reignite growth. ‘The track record of implementation of earlier reform initiatives has been relatively weak and, even if implemented, the effect of the reforms would be limited and take time to accumulate. The challenging fiscal context will also complicate some of the initiatives and will weigh on growth over the medium term.’
According to the report, the downgrades are yet another blow for South Africa, after the country lost its last remaining investment-grade rating when Moody’s cut SA to junk status in late March, just as it went into a hard lockdown to prevent the spread of the coronavirus.