Rand breaches R19/$ as Fitch sinks SA deeper into junk status

The rand on Friday breached the R19 mark against the dollar after Fitch Ratings downgraded South Africa’s credit rating deeper into junk status with a negative outlook.

The rating agency said the downgrade of South Africa’s ratings is a result of the lack of “a clear path towards government debt stabilization” as well as the expected impact of the COVID-19 shock on public finances and growth.

The rating agency, in a note, said the negative outlook reflects the prospect of further pressure on government debt.

The agency also said The COVID-19 crisis, combined with a recession in the second half of the year, means South Africa’s economy is forecast to contract by 3.8% this year.

“The contraction primarily reflects a 21-day lockdown, during which large parts of the economy, including most mines and manufacturing plants, have ceased operating,” Fitch said.

“The government has stated that the lockdown will not be extended, but many sectors may see continued significant disruption and global demand will remain adversely affected for some time.”

In another grim forecast, Fitch said it expected South Africa’s consolidated fiscal deficit to surge to 11.5% of GDP this financial year, from 6.6% in 2019/20. The agency also estimates that South Africa’s debt to GDP will rise from 64.5% of GDP in 2019/20 to 80.2% in 2021/22.

Fitch’s peers. Moody’s Investor Services last week also downgraded South Africa’s sovereign ratings.

Finance Minister Tito Mboweni said that non-investment grade ratings have undesirable implications for the whole economy.

“To assure all South Africans, government is seized with addressing and minimizing the impact of COVID-19, implementing measures to improve economic growth and setting government finances on a sustainable trajectory,” Mboweni said.

“This work requires close collaboration and coordination across various sectors of the economy.”

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