South Africa Outlook Cut to Negative by S&P Amid Fiscal Woes

Prinesha Naidoo and Justin Villamil

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South Africa could fall deeper into junk territory after S&P Global Ratings cut the outlook on its assessment of the nation’s debt to negative, citing slow growth, the upwardly revised fiscal deficit and a growing debt burden.

“We could lower the ratings if we were to observe continued fiscal deterioration,” S&P said in a statement. It left unchanged South Africa’s rating of BB, which is two steps below investment grade.

South Africa’s finances are deteriorating due to billions of dollars in bailouts for unprofitable power producer Eskom Holdings SOC Ltd. Gross government debt is set to surge to 80.9% of gross domestic product by fiscal 2028 unless urgent action is taken, the National Treasury said last month. The trajectory is almost 20 percentage points higher than forecast in the February budget and shows no sign of stabilizing.

Sixteen of 22 economists surveyed by Bloomberg predicted the move. Another cut means it would take South Africa even longer to regain its investment-grade status at S&P, the first major ratings firm to cut the nation to junk in 2017 after former President Jacob Zuma replaced the finance minister in a late-night cabinet shake-up. The nation is now led by Cyril Ramaphosa.

“The government fully recognizes S&P’s assessment of the challenges and opportunities which the country faces in the immediate to long-term and remains committed to placing public finances on a sustainable path while aiming for inclusive economic growth,” the National Treasury said in an emailed statement on Saturday. “The government reiterates that the growth in the public sector wage bill needs to be addressed in order to reduce the debt burden.”

Moody’s lowered the outlook on its investment-grade rating to negative less than three weeks ago, effectively giving the nation three months to get its finances in order. A Moody’s downgrade would force South Africa out of the FTSE World Government Bond Index, which could prompt a selloff and outflows of as much as $15 billion, according to Bank of New York Mellon Corp. It will also raise borrowing costs and make it even more difficult for the government to finance the budget.

Here’s what analysts had to say:

Daniel Tenengauzer, head of markets strategy at BNY Mellon in New York:

“I don’t think it makes a big difference,” Tenengauzer said. “The only thing that could move the rand from here would be an actual downgrade.”“It’s important to keep in mind that Moody’s clearly is the more critical because it could trigger the WGBI exit. Having said that, if the spread between S&P and Moody’s widens too much, that obviously should push Moody’s in that direction as well.”

Razia Khan, chief economist for Africa and the Middle East at Standard Chartered Bank Plc in London:

The market impact “should be negligible,“ because it was so widely expected, she said. At the same time, though, “it does provide important political cover to both the Ramaphosa administration, and to the Treasury in particular, to pursue faster fiscal and structural reform.”

Brendan McKenna, a currency strategist at Wells Fargo in New York:

S&P’s decision “probably doesn’t impact the currency all that much just given S&P’s credit rating is already non-investment grade,” he said. There’s a small risk, though, that it influences Moody’s Investors Service to downgrade the nation as well.

(Updates with comment from National Treasury in fifth paragraph)

--With assistance from Andres Guerra Luz, Carolina Wilson and Amogelang Mbatha.

To contact the reporters on this story: Prinesha Naidoo in Johannesburg at;Justin Villamil in Mexico City at

To contact the editors responsible for this story: Rene Vollgraaff at, Ana Monteiro, Alec D.B. McCabe

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