S&P Global Ratings on Friday lowered South Africa’s credit rating further into “junk” territory, citing the country’s deteriorating public finances and weak economic growth outlook.
S&P dropped South Africa’s long-term foreign currency sovereign rating to “BB,” having placed it higher in the speculative category at “BB+” in April.
“Weak GDP growth has led to further deterioration of South Africa’s public finances beyond our previous expectations,” S&P said in a statement. “We think the government will attempt to introduce offsetting measures in an effort to improve budgetary outcomes, but these may not be strong enough to stabilize public finances, and may weaken economic growth further in the near term.”
“In our view, economic decisions in recent years have largely focused on the distribution — rather than the growth — of national income,” S&P said.
“As a consequence, South Africa’s economy has stagnated and external competitiveness has eroded,” it added.
S&P said its outlook on South Africa is “stable,” meaning credit metrics are not expected to change significantly over the next year.
S&P’s move comes amid worsening economic data and as tensions rise within the African National Congress, which is to choose a new party leader next month to replace South African President Jacob Zuma.
South African Minister of Finance Malusi Gigaba last month slashed the country’s GDP growth forecast for this year from 1.3 percent to just 0.7 percent, and revealed that by 2020, 15 percent of government revenue would be eaten up by debt repayment.
Zuma is accused of enriching a new corrupt elite rather than helping the poverty-stricken black majority.
The government is considering measures over the next two weeks that would combine tax increases and spending cuts to save 40 billion rand (US$2.83 billion) in fiscal year 2019, the South African National Treasury said.
It is to provide more information in a budget that is scheduled to be released in February.
Additional reporting by Bloomberg
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