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Fitch downgrades South Africa’s credit rating to ‘junk’ status

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Fitch, South Africa, Ratings

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.

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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.

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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.

Africa News

Vanguard

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