Government remains committed to reforms despite Fitch decision

As rating agency Fitch announced its decision to downgrade South Africa from “BB+” to “BB”, placing the country further into non-investment grade, government has emphasised its commitment to implement structural economic reforms.

Economic growth

In a statement on Friday 3 April 2020, government said it has noted the decision by the agency.

In its decision, Fitch cited the lack of a clear path towards government’s debt stabilisation, as well as the expected impact of the Coronavirus (COVID-19) shock on public finances.

The agency also cited economic growth as the reason for the downgrade. The Ministry of Finance in a statement:

“To assure all South Africans, government is seized with addressing and minimising the impact of COVID-19, implementing measures to improve economic growth and setting government finances on a sustainable trajectory. This work requires close collaboration and coordination across various sectors of the economy.”

Low investment grade

Treasury said the negative outlook reflects the prospect of further significant upside pressure on government debt and additional downside risks associated with the global shock. 

Last week, Moody’s announced its decision to downgrade South Africa’s long-term foreign and local currency debt ratings to “Ba1” from “Baa3”, and maintain the negative outlook.  

South Africa’s credit ratings by Moody’s are now one notch below investment grade.

Also read – COVID-19: Rand takes nosedive and hits new all-time low

Government to address weak economic growth

In the midst of the prevailing financial market stress emanating from COVID-19 and credit ratings downgrades by Moody’s and Fitch, government reiterated its commitment to implement structural economic reforms to address the weak economic growth, a constrained fiscus and ailing State-owned companies.

In addition, government continues to prioritise and implement measures announced by President Cyril Ramaphosa. These measures are aimed at containing the spread of COVID-19, as well as limiting its impact on the economy.

Despite the downgrade and severe disruption in global financial markets, Fitch acknowledged South Africa’s resilience to external shocks. The agency said:

“We do not expect acute problems in fiscal financing, partly reflecting the unusually long-average maturity of government securities (15 years) and the low share of foreign-currency debt in total debt (10%).”