Ratings agency Fitch downgraded South Africa’s credit rating further into “junk” territory on Friday, another blow for Africa’s most industrialised economy, which is still smarting from a Moody’s downgrade last week.
Fitch lowered its long-term foreign-currency issuer default rating to ‘BB’ from ‘BB+” and assigned a negative outlook.
The agency cited “the lack of a clear path towards government debt stabilisation as well as the expected impact of the COVID-19 shock on public finances and growth” among reasons for its decision.
South Africa’s finance ministry acknowledged the downgrade and said it would implement structural reforms to address weak economic growth.
“Government is seized with addressing and minimising the impact of COVID-19, implementing measures to improve economic growth and setting government finances on a sustainable trajectory,” Finance Minister Tito Mboweni was quoted as saying in a statement.
Fitch forecast South Africa’s gross domestic product (GDP) would contract 3.8% in 2020 and that the consolidated fiscal deficit would surge to 11.5% of GDP in the current fiscal year.
It said a government-imposed 21-day lockdown to contain the coronavirus outbreak was a primary reason behind this year’s expected contraction.
South Africa’s public finances have been stretched by a steep run-up in debt in the past decade, partly to fund bailouts for ailing state companies like power utility Eskom and South African Airways.
Moody’s stripped the country of its last investment grade credit rating last week, a move which will see the country’s local-currency debt ejected from the benchmark World Government Bond Index.