Fitch downgrades South Africa to junk status

The new finance minister Malusi Gigaba has said he will continue with Gordhan's fiscal policy and will not have a policy shift. South Africa is currency battling to contain the triple challenges of poverty, unemployment and inequality.

Fitch believes that with tensions in the ruling party, African National Congress (ANC) and pressure in the public service delivery will force Treasury to exceed its demands for increased spending.

Fitch also said, "political uncertainty was already an important factor behind weak growth last year, as in Fitch's assessment it has affected the willingness of companies to invest. The agency believes that the cabinet reshuffle will further undermine the investment climate.

Fitch forecasts GDP growth of 1.2 percent in 2017 and 2.1 percent in 2018, but the reshuffle has raised downside risks."

Some issues were raised as sensitive and could individually or collectively result in negative rating action. These include the failure to stabilize the government debt/GDP ratio or an increase in contingent liabilities.

They also cited the failure of GDP growth to recover sustainability due to sustained uncertainty about economic policy. The rising net external debt to levels that raise the potential for serious financing strains on the country could result in further downgrade, noted Fitch.

This comes after another rating agency S&P downgraded the country foreign currency sovereign rating to sub investment early this week. S&P also downgraded South Africa's seven banks foreign currency ratings to junk status yesterday.- Xinhua

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