by SAVIOUS KWINIKA
JOHANNESBURG, (CAJ News) – THE downgrade of South Africa’s credit rating by international agencies is a severe blow to the continent’s most advanced economy reeling from the worst coronavirus (COVID-19) outbreak in the region.
The consequences of downgrades, according to experts, include higher costs of living, more spend on servicing debt and less funds available for basic services.
Moody’s has downgraded the country’s credit score one notch to BA2 and maintained a negative outlook.
Moody’s forecast that the crisis would leave “long-term scars” on South Africa’s fiscal position principally through a severe loss in revenue of about 5 percent of gross domestic product (GDP), which the government could not fully and quickly compensate through spending cuts nor recover as well as rising borrowing costs.
Fitch Ratings has downgraded South Africa’s credit rating from BB to BB- again with a negative outlook.
Fitch stated the downgrade and negative outlook reflected high and rising government debt, exacerbated by the economic shock triggered by the COVID-19 pandemic.
The third other major agency, S&P Global Ratings, retained its rating at BB- for its foreign currency rating and BB for its local currency, both with a stable outlook.
The downgrades by Moody’s and Fitch thus thrust South Africa further into junk status.
Such a development coincides with ambitious efforts to secure R1,2 trillion (US$77,8 billion) worth of additional investments over the next five years, led by the administration of President Cyril Ramaphosa under the aegis of the third South Africa Investment Conference.
Last month (October), the government also launched the Economic Reconstruction and Recovery Plan (ERRP).
The focus is on boosting infrastructure investment, increasing energy supply, job creation and re-industrialisation.
But according to Fitch, the track record of implementation of earlier reform initiatives had been relatively weak and, even if implemented, the effect of the reforms would be limited and take time to accumulate.
“The challenging fiscal context will also complicate some of the initiatives and will weigh on growth over the medium term,” the agency stated.
A rating upgrade is unlikely in the near future given the negative outlook.
Already, South Africa, a country of an estimated 59 million people is battling unemployment, which is at 30,8 percent, has risen by its worst levels since the global meltdown in 2008.
Unemployment and another deterrent that is rampant corruption had been major problems even before the outbreak of COVID-19 earlier this year.
Government imposed a lockdown at the end of March.
Infections have soared to 765 409 cases, including 20 845 deaths.
Last week’s investment conference culminated with a total 50 companies pledging R 109,6 billion.
President Ramaphosa acknowledged the tough times ahead in the context of the COVID-19 disrupting global markets.
“Tough decisions have had to be made on investments, on expansion and on entry into new markets,” the president said.
– CAJ News