Fitch holds SA’s investment-grade rating, but cuts outlook to negative

28 November 2016

Ratings agency Fitch affirmed South Africa‘s investment-grade credit rating at one notch above ‘junk’ on Friday but changed its outlook to negative from stable, warning that political risks could hurt growth.

The country needs to borrow about 165 billion rand ($12 billion) this fiscal year to help plug its budget deficit, and the Treasury warned this month that its borrowing costs could double or triple if it falls into sub-investment grade.

Fitch said that, although business confidence was depressed and investment was contracting, South Africa‘s economy may have started to recover.

But it said in-fighting in the ruling African National Congress (ANC) was likely to continue at least until the party’s electoral conference in December 2017.

“In Fitch’s view, this will distract policymakers and lead to mixed messages that will continue to undermine the investment climate, thereby constraining GDP growth.”

S&P’s on Friday cut state-owned power utility Eskom‘s credit rating a further notch into subinvestment.

Peter Attard Montalto, a London-based Africa analyst at Nomura, said this raised concerns that the country’s sovereign rating would also be dragged into junk status “given the interdependence of parastatal ratings with the sovereign.”

Gordhan said he saw no reason for Moody’s to downgrade South Africa), adding: “We still have a formidable base.”

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