SA’s Outlook Changed to Negative by S&P

On Friday evening, South Africa’s sovereign credit rating was changed to negative by S&P Global Ratings, citing rising fiscal deficits, low GDP growth and a growing debt burden. However, the rating agency did not downgrade the country further into junk. If fiscal deterioration continues though due to rising interest costs, higher pressure on spending or the “crystallization of contingent liabilities related to state-owned enterprises, especially Eskom” then S&P may lower the rating. 

Analysts did anticipate this assessment though and 16 out of 22 analysts in a Bloomberg survey expected the outlook to change from stable to negative. 

As it stands only Moody’s still has SA at investment grade. After the decision on Friday, S&P has South Africa’s long term foreign currency rating at BB and the long term currency rating at BB+. 

At the beginning of November, Moody’s changed its outlook to negative. 

S&P said on Friday that its rating was constrained by low GDP per capita growth, large and rising government debt burden, weak economic expansion and sizeable contingent liabilities primarily tied to debt laden Eskom. 

S&P will be closely monitoring South Africa’s economic performance to see if it weakens further. They also said that they could consider lowering the ratings if property rights, rule of law or enforcement of contracts were to weaken significantly, which would undermine the investment and economic outlook. But they think that is unlikely. 

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