SA wins reprieve as junk status is averted – for now

[caption id="attachment_150602" align="alignright" width="300"] Standard and Poors. Picture: REUTERS[/caption]

South Africans can breathe a sigh of relief as ratings agency S&P has maintained its position of the country’s sovereign debt. The decision is crucial for the economy and the political sphere.

Reuters reported on Friday night that S& P had affirmed the rating at BBB-‚ but warned that the outlook remained negative‚ reflecting the potential adverse consequences of low GDP growth.

S&P rating of SA’s debt is just one notch higher than sub-investment grade (BBB-). A downgrade to BB+‚ or junk would have put SA on a par with Russia‚ Indonesia‚ Turkey and Azerbaijan‚ among others.

The effect of a junk rating would have increased SA’s overseas borrowing costs for companies as well as the state‚ reduce the country’s attractiveness to foreign and domestic investors‚ and further weaken the rand.

About 10% of government debt is foreign debt.

Ratings agency Fitch‚ which also rates the country’s debt at one notch higher than junk‚ is expected to announce its verdict on June 8.

Another review by S& P is due in December.

Finance Minister Pravin Gordhan previously revealed that S&P and Fitch met the Treasury two weeks ago‚ with S&P also visiting businesses and other stakeholders.