Junk relief as SA avoids downgrade, but S&P lowers local currency debt. Full report.

From Fin24

Cape Town – S&P Global has lowered the long-term local currency ratings on South Africa, saying fiscal financing needs are increasing beyond their previous base-case expectations.

The ratings agency affirmed all other foreign currency ratings with a negative outlook.

That means South Africa remains one notch above junk status.

The rand firmed sharply from an overnight close of R14.10 to the greenback and held steady at around R13.93/$ ahead of the S&P announcement.

By 18:40 the currency was trading at R13.95/$. Prior to the announcement, ANC treasurer general Zweli Mkhize, SA doesn’t deserve a ratings downgrade by S&P, explaining that in his view South Africa had not declined so much over the last couple of months to deserve a credit ratings downgrade.

S&P said in a statement on its website South Africa continues to depend on resident and nonresident purchases of  rand-denominated local currency debt to finance its fiscal and external deficits. Its financing needs have risen beyond our previous expectations, with general government debt set to increase by an average of 4.9% of GDP over 2016-2018, to reach gross debt of 54% of GDP in 2019. The proportion  of rand in global foreign exchange turnover has also declined to just below 1% on average over the past three years.

Also read: SA avoids credit downgrade to junk as Fitch, Moody’s grant respite

We also believe political events have distracted from growth-enhancing  reforms, while low GDP growth continues to affect South Africa’s economic  and fiscal performance and overall debt stock.

We are therefore lowering our long-term local currency rating on South  Africa to ‘BBB’. We are affirming all other ratings.

The negative outlook reflects the potentially adverse consequences of persistently low GDP growth for the public balance sheet. – Fin24

Source: http://www.fin24.com/Economy/sp-lowers-sas-long-term-local-currency-ratings-20161202

Standard & Poors overview

• South Africa continues to depend on resident and nonresident purchases of rand- denominated local currency debt to finance its fiscal and external deficits. Its financing needs have risen beyond our previous expectations, with general government debt set to increase by an average of 4.9% of GDP over 2016-2018, to reach gross debt of 54% of GDP in 2019. The proportion of rand in global foreign exchange turnover has also declined to just below 1% on average over the past three years.
• We also believe political events have distracted from growth-enhancing reforms, while low GDP growth continues to affect South Africa’s economic and fiscal performance and overall debt stock.
• We are therefore lowering our long-term local currency rating on South Africa to ‘BBB’. We are affirming all other ratings.
• The negative outlook reflects the potentially adverse consequences of persistently low GDP growth for the public balance sheet.