Rating agency Fitch sunk South Africa deeper into junk status on Friday, a move which saw the rand breach R19 to the dollar.
The rand was trading at R19.03 on Friday before the Johannesburg Stock Exchange (JSE) closed for business.
Ratings of Africa’s second largest economy were downgraded one notch further into sub-investment grade with Fitch blaming the South Africa’s “lack of a clear path towards government debt stabilisation as well as the expected impact of the COVID-19 shock on public finances and growth”.
The negative outlook, “reflects the prospect of further significant upside pressure on government debt and additional downside risks associated with the global shock,” Fitch added.
The agency forecasts that the country’s economy will contract by 3.8% in 2020 only recovering slightly to 1.7% in 2021.
“The contraction primarily reflects a 21-day lockdown, during which large parts of the economy, including most mines and manufacturing plants, have ceased operating,” saying even if the lockdown is not extended many sectors will be disrupted and global demand will not recover any time soon.
Fitch’s downgrade comes a week after Moody’s snuffed out SA’s last investment-grade rating citing continued deterioration to public finances, the slow pace of reform, rising public debt, and an inability by government to stimulate the economy.
“In the midst of the prevailing financial market stress emanating from COVID-19 and credit ratings downgrades by Moody’s and Fitch, the government reiterates its commitment to implement structural economic reforms to address the weak economic growth, constrained fiscus and ailing state-owned companies,” the National Treasury said in a statement noting the Fitch downgrade.
