South Africa downgraded to junk status

Four days after Pravin Gorhan was fired as Finance Minister, ratings agency S&P Global has downgraded South Africa to junk investment status.

S&P said that the downgrade reflects their view that the divisions in the ANC-led government have led to changes in the executive leadership, including the finance minister, and 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 in a statement.

“In our view, higher risks of budgetary slippage will also put upward pressure on South Africa’s cost of capital, further dampening already modest growth.”

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S&P said the executive changes initiated by President Jacob Zuma have affected fiscal and growth outcomes.

“We assess that contingent liabilities to the state are rising,” the global ratings agency said.

S&P lowered the 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’.

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