13 June 2014

South Africa: Ratings Agencies Downgrade South Africa's Credit Ratings

Photo: Abdullah Muashi/Flickr
Cape Town

Johannesburg — Ratings agency Standard and Poor's (S&P) on Friday lowered South Africa's long-term foreign currency credit rating one notch, to BBB- from BBB.

"The downgrade reflects our expectation of lacklustre GDP [gross domestic product] growth in South Africa, against a backdrop of relatively high current account deficits, rising general government debt, and the potential volatility and cost of external financing," the agency said in a research update.

According to S&P, BBB means a government has "adequate capacity to meet financial commitments, but more subject to adverse economic conditions".

BBB- is considered the lowest investment grade by market participants.

"A prolonged strike in the platinum sector, as well as weak domestic and external demand, led GDP to contract in the first quarter of 2014 and is likely to depress second-quarter GDP growth.

"We are therefore lowering the long-term foreign currency rating on South Africa to BBB- from BBB and the long-term local currency rating to BBB+ from A-."

It said the outlook was stable.

"The stable outlook reflects our view that current labour tensions will be resolved and that lacklustre economic performance will not affect South Africa's fiscal and external balance beyond our revised expectations."

Earlier on Friday, Fitch ratings agency revised the outlook on South Africa to negative from stable and affirmed its credit rating at BBB.

It said the outlook revision was partly due the strike at platinum mines.

Association of Mineworkers and Construction Union (Amcu) members have been on strike at Lonmin, Anglo American Platinum, and Impala Platinum since January 23, demanding a basic monthly salary of R12,500.

Platinum producers said earlier on Thursday an agreement in principle had been reached with Amcu. Amcu said outstanding issues still needed to be discussed.

Treasury said on Friday it noted S&P's rating decision.

"At the outset, government acknowledges the negative impact that the strike has had not only on mining output, but also on industries that have linkages to the sector as suppliers of goods and services and those that process raw materials supplied by the affected mines.

"It is for this reason that government did everything in its power to support efforts aimed at resolving the strike," it said in a statement.

The government's ability and commitment to service its debt had not changed, it said.

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