Moral from credit rating downgrade: “Put your act together!”


Don’t ignore the undertone behind Standard & Poor’s (S&P) downgrade of South Africa’s credit rating. It means the country should sort out the problems afflicting its economy, urgently, if it harbours hopes of implementing the National Development Plan (NDP), let alone progressing.

S&P lowered South Africa’s long term currency sovereign credit rating from ‘BBB’ to ‘BBB-‘and the long-term local currency rating to ‘BBB+’ from ‘A-‘. The short-term foreign currency rating was also downgrade to ‘A-3’ from ‘A-2’.

Good news, though, was that the short-term local currency rating was ranked at ‘A-2’ and the long- and short-term national ratings at ‘zaAAA’ and ‘zaA-, affirming a stable outlook.

The downgrade might worsen the perception amongst prospective international investors of an economy already grappling with labour, growth and electricity challenges.

A statement from S&P’s said: “The downgrade reflects our expectation of lacklustre GDP growth in South Africa, against a backdrop of relatively high current account deficits, rising general government debt, and the potential volatility and cost of external financing.”

In addition, S&P did not anticipate bold moves to address the situation. They won’t be any radical shift in President Jacob Zuma’s newly elected administration’s approach in terms of controlled fiscal expenditure and fostering broadly stable prices, it observed. Even so, it did not expect major labour or economic reforms that would boost GDP growth.

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