Fitch downgrades local currency debt
FITCH Ratings downgraded South Africa’s local currency debt one level to move it into line with the foreign currency rating, bringing the nation’s R1.7 trillion of domestic debt a step closer to junk level.
The cut to BBB-, the lowest investment grade, was part of a review of Fitch’s local currency assessments, applying new criteria that resulted in downgrades for 23 issuers, the company said. The outlook for South Africa’s rating was kept at stable.
“Although the action represents an alignment, it also serves as a timely reminder of the risks of a downgrade that lie ahead and the urgency of actions required to reinvigorate the economy,” the National Treasury said yesterday.
Fitch kept its evaluation of South Africa’s foreign currency debt at BBB-, one step above sub-investment grade, last month after cutting it a level in December.
Moody’s Investors Service left South Africa’s credit rating at two levels above non-investment grade in May, while S&P Global Ratings kept its assessment at BBB- last month.
“The work we did in the first part of the year will now continue into the second part to ensure we avoid moving into junk investment grading,” Finance Minister Pravin Gordhan said yesterday.
“We are unlikely to remain at 0.9 percent” this year, Gordhan said, referring to the National Treasury’s economicgrowth forecast given in February. “What we are confident about is that we are not going to get into a recession.”
He said the world was in a low-growth trap as was Africa “and so are we at this point in time”.
Gordhan said: “We will remain in a low-growth trap unless we begin to do things differently. If we start doing the right things and contributing to economic growth and confidence building in our economy, we can do better than we are doing now.”
The nation’s government debt levels are rising as the plunge in commodity prices and slow global demand curbs tax revenue.
Gordhan pledged in his February budget to narrow the fiscal deficit and limit gross debt to 50.5 percent of gross domestic product by 2019 by curbing spending and raising taxes.
About 90 percent of the government’s debt is rand-denominated, according to data compiled by Bloomberg.
The rand weakened 0.6 percent to R14.445 to the dollar by 1.48pm in Johannesburg in a third day of declines.
By 5pm the rand was trading at R14.4163 to the dollar.
Yields on South African rand-denominated debt due in December 2026 fell three basis points to 8.75 percent.