S&P Global Ratings on April 3 downgraded South Africa to junk status after President Jacob Zuma forced out the country's finance minister and made other executive changes that the agency said have undermined the country's fiscal and growth outcomes.
South Africa's long- and short-term foreign-currency sovereign credit ratings were cut to BB+/B from BBB-/A-3, and its long- and short-term local-currency sovereign credit ratings were lowered to BBB-/A-3 from BBB/A-2. The outlook on all the long-term ratings is negative.
The rating agency also downgraded the country's long-term South Africa national scale rating to "zaAA-" from "zaAAA," while affirming the "zaA-1" short-term national scale rating.
S&P said the government changes, including the firing of Finance Minister Pravin Gordhan, and divisions in the country's African National Congress-led government have put policy continuity at risk, increasing the prospect that "economic growth and fiscal outcomes could suffer." S&P also cited a rise in contingent state liabilities, particularly in the energy sector, where plans to repair state utility Eskom's financial position may face implementation hurdles.
S&P also noted that although less than 10% of South Africa's debt stock is denominated in foreign currency, some 35% of its local-currency debt is held by nonresidents, "which could make financing costs vulnerable to foreign investor sentiment, exchange rate fluctuations and rises in developed market interest rates."
The negative outlook is based on S&P's view that political risks will remain high in 2017, and also reflects the likelihood of policy shifts that could put the country's fiscal and growth outcomes at risk more than the agency predicts.
S&P's next scheduled rating publication on South Africa's sovereign rating will be June 2.
S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.