SA downgraded to junk status by second ratings firm

By Pam Magwaza
07 April 2017

South Africa has just been downgraded to junk status by Fitch Ratings.

South Africa has been downgraded to junk status by Fitch Ratings.

This makes Fitch the second global ratings firm to downgrade SA to BB+, which is of one the lowest investment grades.

Read more: JUNK STATUS: Ratings agency downgrades South Africa

In a statement of their site, Fitch said the decision was heavily influenced by President Jacob Zuma's reshuffle earlier this week.

"In Fitch's view, the cabinet reshuffle, which involved the replacement of the finance minister, Pravin Gordhan, and the deputy finance minister, Mcebisi Jonas, is likely to result in a change in the direction of economic policy."

They added that the reshuffle partly reflected efforts by the outgoing finance minister to improve the governance of state-owned enterprises (SOEs). The reshuffle is likely to undermine, if not reverse, progress in SOE governance, raising the risk that SOE debt could migrate onto the government's balance sheet.

In the statement, they touch on the axing of former Finance Minister Nhlanhla Nene -- who they believe was removed because of differing views regarding the country's expensive nuclear programme.

Fitch had forecast a GDP growth of 1.2% in 2017 and 2.1 in 2018 but the reshuffle has reportedly raised downside risks.

The only other ratings firm yet to make a move following the cabinet reshuffle is Moody's -- who currently have SA two notches above junk status. They will reportedly make their decision in 30 - 90 days.

To know more about what this all means read: Let’s talk junk: Here’s what you need to know about SA’s new status

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