Further downgrade by Fitch noted – Treasury

THE GOVERNMENT has taken note of Fitch’s decision to lower South Africa’s long-term foreign and local currency debt ratings further into non-investment grade by one notch to BB from BB+ and maintain the negative outlook, the National Treasury said on Friday.

Fitch said the downgrade was the result of the lack of a clear path towards stabilising the government’s debt, as well as the expected impact of Covid-19 on public finances and economic growth.

The negative outlook reflected the prospect of further significant upside pressure on government debt, and additional downside risks associated with the global shock.

Amid the prevailing financial market stress emanating from Covid19 and credit ratings downgrades by Moody’s and Fitch, the government reiterated its commitment to implement structural economic reforms to address the weak economic growth, the constrained fiscus, and ailing stateowned companies.

Furthermore, the government said it continued to prioritise and implement measures announced by President Cyril Ramaphosa to contain the spread of Covid-19, as well as limit its impact on the economy.

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

The agency said “we do not expect acute problems in fiscal financing, partly reflecting the unusually longaverage maturity of government securities (15 years) and the low share of foreign-currency debt in total debt (10 percent)”.

It was true that non-investment grade ratings have undesirable implications for the whole economy.

“To assure all South Africans, the 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,” Finance Minister Tito Mboweni said.

“This work requires close collaboration and co-ordination across various sectors of the economy,” he said.