By Adedapo Adesanya
Standard & Poor (S&P) Global Ratings has downgraded South Africa’s credit rating further into non-investment grade territory.
The credit rating agency said pressures brought about by COVID-19 will have significant adverse implications on the second largest economy in Africa.
S&P also lowered its long-term foreign-currency rating on South Africa to ‘BB-‘ from ‘BB’ and its long-term local-currency rating to ‘BB’ from ‘BB+’.
The ratings agency assigned a stable outlook on both the foreign- and local-currency ratings.
“South Africa’s already contracting economy will face a further sharp COVID-19-related downturn in 2020,” S&P said in a statement on Thursday.
“The COVID-19 health crisis will create additional and even more substantial headwinds to GDP growth, owing to a strict five-week domestic lockdown, the markedly weaker external demand outlook, and tighter credit conditions,” the agency noted.
S&P also said it forecasts the South African economy to shrink by 4.5 percent this year compared with its November 2019 estimate of 1.6 percent growth.
South Africa has spent five weeks under restrictions requiring most of the population to stay at home apart from essential trips, leaving many businesses and individuals struggling without income in the economy of the country which is currently in a recession.
The country’s authorities plan to reopen the agriculture sector and allow some manufacturing and retail to resume on May 1, as it seeks to balance the need to restart economic output and curb the spread of the new coronavirus.
S&P said South Africa’s decision to go into a strict lockdown relatively early has so far limited the health impact of COVID-19.
“Nevertheless, the broader economic fallout will be very difficult to handle, and South Africa entered the crisis from a weak fiscal and economic position,” S&P said.
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