South Africa suffered another blow on Friday afternoon as government debt was downgraded to deeper junk status by Fitch Ratings.
This immediately weakened the rand to more than R19 per dollar in New York trading.
Fitch Ratings downgraded South Africa to junk status in April 2017, lowered its ratings by one level and put a negative outlook on it. Both government debt in rand and in foreign currencies were downgraded to BB on Fitch’s scale.
The negative outlook reflects the risk that government debt will continue to rise and growth will be even more sluggish due to the global impact of the coronavirus crisis.
Fitch now expects economic growth of -3.8% for 2020 and only moderate recovery of 1.7% in 2021.
The grader says the impact of the restriction will be felt for a long time due to disruption of supply chains and global demand.
The downgrade comes just a week after Moody’s Investors Service became the last major ratings agency to downgrade government debt to below investment grade.
Finance Minister Tito Mboweni says the downgrade does indeed have “adverse effects on the entire economy”, but he wants to assure all South Africans that the government is trying to reduce the impact of Covid-19