SA avoids junk-status rating by Standard & Poor's

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Johannesburg, 2 June 2016 - Will South Africa be downgraded to junk status? Amid fears this might happen, ratings agency Standard & Poors will announce its review of South Africas credit rating on Friday.

JOHANNESBURG - Standard and Poor’s has decided to not downgrade South Africa.

The ratings agency has affirmed the country’s sovereign credit rating at one notch above junk status, with a negative outlook.

This is after S&P assessed the country’s economic and political affairs for the past six months.

The announcement is a reprieve for Treasury and South Africans who stood to pay higher interest rates if the country was downgraded.

S&P believes political events have distracted the country from growth-enhancing reforms, while low GDP growth continues to affect its economic and fiscal performance and overall debt stock.

The Fitch ratings firm last week kept South Africa one notch above junk, but dropped its outlook from stable to negative, citing the recent political turmoil under President Jacob Zuma.

Also last week, Moody's kept South Africa unchanged two notches above junk status.

READ: Fitch drops outlook for South Africa from stable to negative

"The South African economy is showing resilience, supported by strong and independent institutions," the Treasury said, welcoming the assessments.

But this week has seen further political drama as Zuma loyalists beat back an attempt by at least four ministers to oust him from power.

Economic growth has fallen to 0.5 percent and unemployment has hit a 13-year high.

READ: Why credit ratings matter and why they can't be ignored

Analysts had said a foreign currency downgrade to junk by S&P on Friday would be cushioned by the Moody's and Fitch assessments.

Earlier on Friday, one analyst predicted S&P might not downgrade South Africa.

Analyst Thabi Leoka said, "So there's two levels: a foreign currency rating and also the local currency rating. I expect them to downgrade the local currency rating, which is currently at triple B plus so it's slightly higher than the foreign currency rating, which is triple B minus."

"So it will just bring the local currency in line with the foreign currency. What this means is that it just makes it a little bit more expensive for South Africa to borrow in local currency."