Ratings agency Moody’s downgraded South Africa credit rating to ‘junk’ on Friday. The company maintains a negative outlook. South Africa’s recession has deepened in the wake of COVID19 pandemic that has strained economic efforts and government plans to reduce public debt.
Moody’s assessment comes after rating agencies Fitch and S&P downgraded SA to junk in 2017. In this case, the country’s long-term foreign and local currency debt ratings were lowered from Baa3 to Ba1.
Moody’s also downgraded South Africa’s long-term foreign-currency and local-currency senior unsecured debt ratings to Ba1 from Baa3, its foreign-currency senior unsecured MTN and senior unsecured Shelf ratings to (P)Ba1 from (P)Baa3, as well as its foreign-currency other short-term rating to (P)NP from (P)P-3.Moody’s Statement on South Africa Junk Credit Rating
In a statement released on Friday, Moody’s cites the continuing deterioration in fiscal strength and structurally weak growth for the downgrade. In addition, the negative outlook is a reflection of weaker economic growth and a bulging debt burden. Moody’s says that public debt may rise faster than currently anticipated thus may weaken debt affordability further straining economic recovery.
Unreliable electricity supply, persistent weak business confidence, and long-standing structural labour market rigidities continue to constrain South Africa’s economic growth.
The downgrading implies that South Africa remains expelled from the World Government Bond Index (WGBI).