JOHANNESBURG: 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.
But Fitch has put the new rating on Stable outlook, indicating it has no further downgrade plans for now, in contrast to S&P which put a negative outlook on its new rating.
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 rand weakened on the news, to an intraday worst level of R13.8426 to the dollar after hovering around the R13.77$ level for the better part of the day.
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.
The Fitch decision was despite new finance minister Malusi Gigaba’s efforts to engage with Fitch and Moody’s over the weekend after he took office, and despite his frequently expressed commitment to staying on the course of fiscal consolidation that government has promised.
Fitch said on Friday that it believed that fiscal consolidation would be less of a priority given the president’s focus on “radical economic transformation”, even though it acknowledged that the new finance minister had stated he doesn’t intend to change fiscal policy.
