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The SA Daily 06 April 2020

Downgrades go viral

Shireen Darmalingam

  • Fitch ratings agency downgraded SA’s sovereign rating further last Friday, to BB (from BB+), with a negative outlook — because there is no clear government strategy to ensure debt stabilisation, cited as key reason for this downgrade. S&P ratings agency too will likely further lower its sovereign rating when publishing its SA review in May.
  • The Moody’s downgrade of the sovereign at end March too cited debt stabilisation as a key concern for that downgrade, together with concerns about structurally weak growth. The agency does not expect “current policy to address these concerns effectively”. Moody’s now forecasts a 2.5% GDP contraction in 2020, followed by only a 1.1% growth rebound in 2021. We expect growth to contract by -5.0% in 2020 and then improve to 4.6% in 2021. The recent Moody’s downgrade automatically triggers SA’s expulsion from the World Government Bond Index (WGBI) at end-April.
  • The rand has lost yet more ground, to over R19/$ as of Friday evening; it is currently at R19.15/$ and will remain under pressure today. Furthermore, COVID-19 is taking a toll in SA, with 1,655 cases confirmed in 30 days and 11 fatalities reported thus far. The rand has weakened by 7.0% since early April and by 27.0% since January. SA’s credit default spread, a measure of risk in the economy, has since last week surged to its highest level on record, to 498 bps (from 159 bps this January), due to both the COVID-19 pandemic as well as the rating agency downgrades.

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