S&P Sees Possibility of S. Africa Downgrade to Junk as `Remote'

  • Country's credit metrics not `going over a cliff,' Reuss says
  • S&P questioning whether outlook captures lack of improvement

South Africa is unlikely to immediately face credit downgrades that will rank the country’s debt junk at two ratings companies, according to Standard & Poor’s.

“Losing two investment-grade ratings, that could be very disruptive” for markets and capital flows, Konrad Reuss, S&P’s sub-Saharan Africa Managing Director, said at the 13th Annual African Capital Markets Conference in Cape Town on Thursday. “But that’s a very remote possibility.”

S&P has a stable outlook on South Africa’s BBB- assessment, which is the lowest investment-grade rating. Fitch Ratings Ltd. has a negative outlook on its BBB assessment, indicating that it may downgrade the nation’s creditworthiness when it publishes its next review on Dec. 4, the same day as S&P. Fitch’s rating is in line with Moody’s Investors Service, which has a stable outlook on the debt, and one level above S&P.

The nation’s “credit metrics are certainly not improving, but also they’re not going over a cliff,” Reuss said. “The medium-term question for us is ‘do we have to change the outlook to reflect that.’”

Finance Minister Nhlanhla Nene cut this year’s growth forecast to 1.5 percent from 2 percent and predicted expansion of 1.7 percent in 2016, down from an earlier estimate of 2.4 percent, in his mid-term budget last month. With the slowdown reducing tax revenue projections, the budget deficit will widen from earlier forecasts, reaching 3.3 percent in the fiscal year through March 2017.

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