Moody’s and Fitch Ratings agencies both downgraded South Africa’s sovereign credit rating deeper into sub-investment territory or junk status, after the close of the JSE on Friday. Moody’s maintained its negative outlook, while Fitch assigned a negative outlook of South Africa’s fiscal situation from a previous stable outlook.

The main reason for this change is high and rising government debt, which has been made worse by a weakening of the economy and a rise of unemployment due to the COVID-19 pandemic.

Fitch and Moody’s downgrade South Africa’s sovereign credit rating further into junk status:

Government has accumulated debt of nearly R4 trillion.

However, Standard and Poor’s maintained its stable outlook for the economy.

The downgrades will probably increase the cost of borrowing and place more stress on government finances, making economic reforms and fiscal consolidation more difficult.

The JSE ended Friday’s session mixed, with the All-Share index slightly weaker at R56 615, while the rand is basically unchanged from before the downgrades at R15.37 to the dollar in Asian trade on Monday morning.

On Saturday, Finance Minister Tito Mboweni said there’s an urgent need for government to implement structural economic reforms to avoid further harm to the country’s sovereign rating.

Mboweni said the decision by the rating agencies will have immediate implications for borrowing costs and constrain government’s budget.

Tito Mboweni cites a big economic blow after Moody’s and Fitch downgrade SA’s ratings:

Chief Economist at Econometrix Azar Jammine said interest rate payments take up 20% tax, which is unsustainable.

“And interest rate payments are now taking up more than 20% of government tax revenue. This is unsustainable and that is why rating agencies have downgraded us. The worrisome part about it is that Moody’s and Fitch yet again placed us on a negative outlook which means that the downgrades may not be over yet.”

Economist Dawie Roodt weighs in on South Africa’s ratings downgrade: