Fitch downgrades South Africa to junk status

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Fitch has become the second major rating agency to downgrade SA’s rating to junk status, cutting both the foreign currency and local currency ratings by one notch on Friday afternoon on concerns that recent political events, including a major cabinet reshuffle, would weaken standards of governance and public finances and was likely to result in a change of economic policy direction.

Fitch's move will almost certainly lead to a rise in government debt-servicing costs, which will mean less money for critical services such as housing, education and sanitation, which could incite even more protests over service delivery that have already rocked towns across the country.

The downgrade, which follows S&P Global Ratings downgrade of SA’s foreign currency rating on Monday night, makes Fitch the first of the agencies to cut the rating on SA’s rand denominated debt to junk status, raising the prospect of a bond sell-off by investors whose mandates restrict them to hold only investment grade assets.

S&P’s rating on SA’s local currency rand denominated bonds is one notch above its foreign currency rating so the local currency rating is still investment grade on the S&P scale, and on that of Moody’s.

However, Moody’s on Monday night put SA’s local and foreign currency ratings on review for a downgrade, and is expected to announce its decision within 30 to 90 days. -