One in three chance of further downgrade - S&P

In a recent interview on CNBC Africa, Ravi Bhatia, Global Ratings Director at S&P, discussed the current economic situation in South Africa and the potential for a downgrade of the local currency. Bhatia highlighted the concerns that led to the recent downgrade of South Africa's foreign currency rating, emphasizing the country's tight fiscal situation and lackluster growth numbers. He expressed worry over the rising debt stock and the potential pressures on the fiscal environment due to political changes. These factors prompted S&P to take action alongside concerns about contingent liabilities. However, Bhatia clarified that despite the downgrade, South Africa's local currency rating remains in investment grade territory. The focus now shifts to the possibility of a downgrade to sub-investment grade for the local currency rating. Bhatia revealed that both the local and foreign currency ratings have a negative outlook, suggesting a one in three chance of a further downgrade. S&P will closely monitor the fiscal pressures and assess whether they align with expectations to determine any future rating actions. Despite the current negative outlook, Bhatia highlighted the importance of ongoing evaluation to ensure timely and forward-looking assessments. The interview also touched on the timing of S&P's rating announcement, addressing queries regarding Finance Minister Malusi Gigaba's prior knowledge of the downgrade. Bhatia reiterated S&P's adherence to standard procedures and regulations, confirming that the rating was issued after close of business hours on the designated day. While acknowledging the Finance Minister's statement about being informed earlier, Bhatia emphasized S&P's proactive approach to address potential fiscal risks promptly. Looking ahead, Bhatia outlined the key factors that S&P will closely monitor to assess South Africa's economic situation. These include the growth trajectory, fiscal performance, and contingent liabilities, particularly related to state-owned entities. Any deviations or red flags in these areas could trigger further action from S&P, underscoring the need for ongoing vigilance and evaluation. The uncertainty surrounding South Africa's local currency rating underscores the challenges facing the country's economic landscape and the importance of prudent fiscal management to avert potential downgrades. As stakeholders navigate these complexities, S&P's monitoring and assessments will play a crucial role in shaping the future trajectory of South Africa's economic outlook.