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Investors already pricing in SA downgrade

Mar 5 '16 | By La Afrique Media | Views: 127 | Comments: 0

Investors already pricing in SA downgrade

Standard Bank is the latest financial institution to express concern over a possible downgrade of South Africa’s sovereign credit rating to junk status.

According to Bloomberg, investors are already pricing in a credit-rating downgrade for the country, amid muted economic growth.

The economy grew by just 0.6% in the last quarter of 2015, down from 1% in the previous quarter, while the rand remains fragile against its global counterparts.

South Africa can’t avoid a credit-rating downgrade with good fiscal numbers alone, Finance Minister Pravin Gordhan told Bloomberg.

“There was a time when ratings agencies would take their matrix and tick the boxes to say ‘fiscally you look sound,’” Gordhan said at a post-budget briefing in Johannesburg on Thursday.

“In the last six years the goalposts have shifted and now include fiscal stability, indebtedness, where growth is going to come from and the political economy,” he said.

“It doesn’t matter if it’s too little too late, let’s give it our best shot,” Gordhan said on whether the measures in the budget were enough to avert a downgrade. “If it was too late, at least the people will say we tried.”

Bloomberg noted that credit default swaps, used to insure the country’s debt against default for five years, are higher than that of Turkey and Russia, which are both rated junk by ratings firm, S&P.

Last month, the World Bank warned that South Africa is at risk of slipping into recession in 2016, while ratings firm Moody’s said that the country’s worst drought on record could push the country over the edge.

Moody’s current outlook for South Africa is negative, as is S&P, while Fitch’s outlook is stable for the country.

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