South African rand slides on ratings agency downgrade, review

South African rand slides on ratings agency downgrade, review

The South African lost ground against the US dollar Friday, following a ratings downgrade from Standard & Poor’s ratings agency. Moody’s investor service has also placed the country's sovereign rating on review for downgrade.

By 1345 BST, one US dollar was worth ZAR13.755. While that’s an improvement on the ZAR14.147 it hit Friday, the rand remains weaker than it has for much of 2017.

Economic outlook weaker than previously thought

S&P reduced its long-term foreign currency sovereign credit rating of South Africa to ‘BB’ from ‘BB+’. The ratings agency also affirmed its ‘B’ short-term sovereign credit ratings. S&P published its latest assessment late Friday.

“The downgrade reflects our opinion of further deterioration of South Africa's economic outlook and its public finances,” S&P said in a press release on the ratings change.

“In our view, economic decisions in recent years have largely focused on the distribution—rather than the growth of–national income. As a consequence, South Africa's economy has stagnated and external competitiveness has eroded,” S&P also stated.

It added that even though it anticipates new fiscal measures next year, they may not be sufficient to stabilize public finances quickly.

Moody’s also places South Africa on downgrade review

Moody’s, another of the big three ratings agencies, meanwhile, has placed the country on review for downgrade.

“The decision to place the rating on review for downgrade was prompted by a series of recent developments which suggest that South Africa's economic and fiscal challenges are more pronounced than Moody's had previously assumed,” Moody’s said in a statement, Friday.

“Growth prospects are weaker and material budgetary revenue shortfalls have emerged alongside increased spending pressures. Altogether, these promise a faster and larger rise in government debt-to-GDP than previously expected,” Moody’s added.

The review period is likely to go on until at least February 2018, when South Africa’s next budget is announced.

By Ilona Billington
Ilona is a freelance writer and editor with over 15 years experience reporting and writing about UK and European economics, real estate, financial markets and central banks.

Investing is speculative. When investing your capital is at risk. This site is not intended for use in jurisdictions in which the trading or investments described are prohibited and should only be used by such persons and in such ways as are legally permitted. Your investment may not qualify for investor protection in your country or state of residence, so please conduct your own due diligence. This website is free for you to use but we may receive commission from the companies we feature on this site. Click here for more information.