S&P’s now rates South African longterm debt BBB-, just one notch above junk, a status that prevents many worldwide investors from buying into sovereign bonds.
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The Treasury said in a statement that government had noted and welcomed S&P’s decision.
The ratings agency also said the rising political tensions were accentuating vulnerabilities in the country’s sovereign credit profile.
South Africa’s Treasury said S&P’s decision gave it more time to implement economic reforms before another review in December and to expand growth, which it has forecast at 0.9 percent in 2016, compared with 1.3 percent past year.
“The rating outcome demonstrates that South Africans can unite, especially during hard times, to achieve a common mission”.
Africa’s most advanced economy, which grew an average 5.0 per cent between 2004 and 2007, has been hit by weak worldwide commodity prices and the economic slowdown in China.
In December, President Jacob Zuma’s decision to dismiss the country’s respected finance minister, Nhlanhla Nene, and replace him with a largely unknown and widely criticized parliamentarian, sent the country’s rand currency to all-time lows against the USA dollar and British pound.
At the same time, S&P affirmed the “zaAAA/zaA-1” South Africa national scale ratings.
Finance minister Pravin Gordhan said it was “important to create optimism in our economy and our country and stop making negative noises which harms us not just in the eyes of global investors, but the global public as well”.
Many expected South Africa to lose its investment-grade status due to weak growth, large deficits and political scandals surrounding President Jacob Zuma, including hiring and firing two finance ministers in December, Reuters reported.
“On the growth front the economy is not likely to improve significantly during the next six months and that will be a recipe for a downgrade”, Nedbank economist Isaac Matshego told AFP.
Ratings agency Fitch, which also rates the country’s debt at one notch higher than junk, is expected to announce its verdict on June 8, although it may advance this date.
Analysts say Zuma’s ruling party faces a strong challenge at local government elections in August from opponents seeking to capitalize on his troubles.
With poverty still widespread more than 20 years after the end of apartheid and unemployment at an official 26.7 percent, violent social protests are common around the country.
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“If we don’t find a catalyst for growth within the next few months then a downgrade would be inevitable”, he said.
