In Case You Missed It – South Africa Delves Deeper into Junk by Fitch Downgrade

On Friday, the rand broke through R19 to the dollar and ended the week in a weaker position. 

On the 27thMarch, Moody’s downgraded the economy as the country entered into a 3-week lockdown. In the wake of the global coronavirus pandemic, global markets have plummeted. South Africa has been tarnished by consistently weak economic growth, policy uncertainty, high levels of unemployment and ongoing power outages that have been a constant economic drain over the last few years. 

Many economists and analysts say that Moody’s downgrade was long overdue, but it does mean that South Africa will be forced out of the Government Bond Index, which could lead foreign investment of R88 billion being erased from the economy. 

After the downgrade by Moody’s, Fitch who downgraded South Africa to junk in 2017 took the country down one level on Friday, 3rdApril. Fitch adjusted its assessment of the country from BB+ to BB with a negative outlook. 

Among the reasons for the further downgrade, Fitch noted the lack of clarity towards government debt stabilisation plus the impact of the coronavirus on public finances and growth.

South Africa’s finance ministry recognised the downgrade and said that to address the weak economic growth, structural reforms would be implemented. 

In a statement by Finance Minister, Tito Mboweni, he said that the government holds the task of addressing and minimising the impact of Covid-19, setting government finances on a sustainable trajectory and to implement measures to improve economic growth. 

Due to the 21-day lockdown, Fitch expects the South African economy to contract by 3.8% in 2020. 

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