S&P downgrades SA's outlook
S&P Global unexpectedly downgraded South Africa's credit rating outlook to stable from positive on Wednesday evening.
In an unscheduled announcement, the US credit rating agency cautioned that South Africa's economic growth is facing increasing pressure from severe electricity shortages.
"Reforms to address infrastructure shortfalls and to improve governance and performance at state-owned enterprises (SOEs) are slow, weighing on growth, while contingent liabilities from SOEs pose continued downside risks to South Africa's fiscal and debt position."
In reaction, Treasury said it is taking urgent measures to reduce loadshedding in the short term and transform the sector through market reforms to achieve long-term energy security. Other reforms are underway to improve performance in freight rail.
"In response to the challenges observed by S&P, government acknowledges that higher economic growth and a durable recovery in economic activity require a stable macroeconomic framework, complemented by rapid implementation of economic reforms and improved state capability."
In May last year, S&P upgraded South Africa's outlook to positive. This indicated that its next move may have been an upgrade of the country's credit rating itself. The downgrade to "stable" is a setback, and follows the news of a much larger-than-expected contraction in South Africa's economy in the fourth quarter of last year.
S&P's rating of South African government's long term foreign debt at "BB-", and local debt at "BB", remains "junk”. A "junk" rating means there's a bigger chance that the government won’t be able to pay back its debts.
In 2017, S&P cut South Africa’s rating from investment grade to junk, and in 2020 lowered its rating even further into junk territory, as it warned of a big fallout from Covid-19 on the economy and tax revenues.
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