World Economy

S&P May Downgrade S. Africa to Junk

S&P May Downgrade S. Africa to JunkS&P May Downgrade S. Africa to Junk

Ratings firm Standard and Poor’s has warned that weak South African economic growth and government bailouts of state-owned companies could see Africa’s most industrialized nation downgraded to junk soon.

In its 2016 report on ratings trends in sub-Saharan Africa released this month, S&P said South Africa was in danger of missing its fiscal targets. The ratings agency currently has the country just one notch above sub-investment grade, Reuters reported.

“We could lower the ratings if the gross domestic product growth does not improve in line with our current expectations, or if state-owned enterprises require higher government support than we currently expect,” said S&P analyst Gardner Rusike.

South Africa’s central bank, which decides on rates on Thursday, lowered its growth forecast for 2015 to 1.4% in November, and is tipped to lower the forecast further.

The national treasury has shelled out billions in guarantees and loans to keep state-owned companies afloat.

The government has provided electricity firm Eskom with 10 billion rand ($699 million) in equity, with an additional 13 billion rand expected by March 2016.

Total guarantees given to loss-making national carrier South African Airways amount to 14.4 billion rand.

“We could also lower the ratings if external imbalances increase, or funding for South Africa’s current account or fiscal deficits becomes less readily available,” Rusike said in the report.

South Africa’s current account deficit raced to 4.1% of GDP in the third quarter from 3.1% in the second, while government debt remains high and could remain elevated following the rand’s sharp fall in 2015 and tepid growth.

Along with S&P fellow ratings agency, Fitch also has South Africa one level above junk status, while Moody’s has the country two levels above sub-investment, but with a negative outlook.