South Africa's Credit Rating demoted to Junk Status
Ratings agency, Standard & Poor’s global on Monday announced South Africa's sovereign credit rating has been downgraded to junk status, following the removal of finance minister Pravin Gordhan.
The rating agency says the decision has been taken on the back of political and institutional uncertainty.
Fears of a downgrade were raised last week already when President Jacob Zuma announced his Cabinet reshuffle in which Pravin Gordhan was axed.
The rand dropped on the announcement, moving from levels around R13.51 in late afternoon trade, to R13.66 when S&P delivered its news.
S&P downgraded South Africa’s foreign currency rating to BB+ – officially sub-investment grade – while local currency debt has been downgraded to BBB- (one notch above junk).
Both ratings carry a negative outlook, meaning more downgrades may lie ahead.
The ratings agency said that in its opinion, the executive changes initiated by President Zuma have put fiscal and growth outcomes at risk.
“We assess that contingent liabilities to the state are rising,” S&P Global said.
“The negative outlook reflects our view that political risks will remain elevated this year, and that policy shifts are likely, which could undermine fiscal and economic growth outcomes more than we currently project.
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