24 November 2017

South Africa: Government Notes Fitch's Decision Not to Further Downgrade SA

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South African rands - bank notes and coins.

Government has noted Fitch Ratings' decision not to further downgrade South Africa deeper into junk status.

National Treasury on Thursday said the decision affords the country an opportunity to address the issues it faces.

On Thursday, the credit rating agency affirmed South Africa's long-term foreign and local currency debt ratings at 'BB+' and maintained the stable outlook.

"Government has noted Fitch's decision not to further downgrade South Africa deeper into 'junk status'. While Fitch's ratings imply that South Africa is still in line with other emerging markets in the same ratings category, the implications are huge for the country. By not downgrading the country further, Fitch is providing South Africa an opportunity to address issues that can lead to an upward revision to the ratings," said National Treasury.

In its reaction to the credit rating decision, Treasury said a "junk status" ratings has implications for the economy, State debt costs, State-owned companies and the ordinary man on the street.

Since April 2017 when Fitch downgraded the country to 'junk status', the country has seen a recession, borrowing costs have increased, and revenue has underperformed. However, the country has since emerged out of the technical recession.

"Government and the country collectively cannot afford to become complacent about these rising risk exposures. Concluding on critical policies remains important for providing certainty in the country. Partnership with business and labour is also crucial for restoring confidence," Treasury said.

It further stated that tangible progress has been achieved on most of the 14 Confidence Boosting Measures and this is expected to translate into improved investor confidence.

Meanwhile, rating agencies Moody's Investor Service and Standard & Poor's (S&P) are expected to announce their rating decisions with respect to the South African economy today.

Speaking to SAnews earlier this week, Treasury's acting Accountant General Zanele Mxunyelwa urged South Africans to work together to ensure the country's full economic recovery.

"You cannot influence rating agencies. However, in terms of National Treasury, we felt that we should be transparent about what is in the economy and to strengthen governance," said Mxunyelwa.

The acting Accountant General said government is further working on cost containment measures.

"We are waiting for them but we believe that [every] economy has ups and downs. We should all work together to make sure that our economy improves," said Mxunyulwa.

Following its last meeting of the year, the Reserve Bank's Monetary Policy Committee's announced its decision to keep the repo rate unchanged at 6.75%.

At the media briefing to announce the decision on Thursday afternoon, Central Bank Governor Lesetja Kganyago highlighted the impact that a ratings downgrade could have on the exchange rate.

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