{UAH} SOUTH AFRICA REDUCED TO ONE LEVEL ABOVE JUNK

South Africa’s credit rating cut to one level above junk by S&P

June 17, 2014 | Filed under: Company News | Author: Editor

South Africa’s credit rating was cut to one level above junk by Standard & Poor’s as the longest mining strike in the nation’s history threatens to drag the economy into recession, curbing government revenue.
The foreign-currency rating was lowered to BBB- from BBB and the local-currency rating was reduced to BBB+ from A-, S&P said in a statement. The outlook on the ratings was raised to stable from negative. Fitch Ratings also lowered the outlook on its BBB grading to negative from stable.
South Africa’s economy, the second-largest on the continent after Nigeria, contracted in the first quarter for the first time since 2009 as a 20-week strike over pay shut the world’s biggest platinum mines.
Weaker growth may restrict the government’s ability to rein in the budget deficit as quickly as targeted.
“The fiscal stance over the next few years may become exposed to lower-than-expected economic growth, pressures from a new round of public-sector wage negotiations, and increased public spending needs,” S&P said.
The rand pared losses after the statement and traded 0.2 percent lower against the dollar at 10.6964 as of 6:30 p.m. in Johannesburg. The yield on rand-denominated government bonds due December 2026 rose three basis points, or 0.03 percentage point, to 8.4 percent.
“Market reaction is blunted by the fact that a risk of a downgrade had largely been priced in,” Razia Khan, head of Africa economic research at Standard Chartered Plc in London , said in an e-mailed note to clients. “Some had even spoken of the likelihood of a two-notch downgrade from S&P. From this perspective, the assigning of a ‘stable’ outlook to South Africa’s rating by S&P is positive news, relatively speaking.”
The government has pledged to narrow the budget deficit to 2.8 percent of GDP in three years’ time from 4 percent in the fiscal year that ended in March

 

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