NEWS

Fitch Revises South Africa's Outlook From Stable To Negative And That's A 'Red Flag'

Ouch.

25/11/2016 18:55 SAST | Updated 25/11/2016 19:41 SAST
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This is bad news.

Ratings agency Fitch has revised South Africa's outlook from stable to negative and put the country on BBB- status.

The agency pointed to increased "political risks to standards of governance and policy-making" which had "negatively affected macroeconomic performance". It said continued in-fighting in government and the ANC would "distract policymakers and lead to mixed messages that will continue to undermine the investment climate, thereby constraining GDP growth".

In its statement, the agency also referred to the public protector's State of Capture report and "allegations of influence peddling and improper procurement practices involving close allies of the president" which underlined "the risks to state-owned enterprise (SOE) governance".

Other factors also influenced the change in outlook included the poor economy. The ratings agency said it expects only a modest GDP growth of 1,3 percent next year.

The economy had been hit in 2015 and 2016 by electricity shortages, the worst drought in decades, a sharp fall in international prices for some of South Africa's main mining commodities and rising policy uncertainty. Fitch

Although the agency did not downgrade South Africa, it said that certain risk factors - including continued political instability, failure to stabilise the government debt to GDP ratio, the failure of GDP growth to recover sustainably and rising net external debt - could result in a downgrade further down the line.

Iraj Abedian, economist at Pan African Investment, said the revised outlook was a "red flag" warning that next time round the country might be downgraded.

Abedian said the revision was not inconsequential. "A country whose prospects are downgraded to negative prepares itself to pay a premium every time they go to the market to borrow," he said."It's bad news, definitely."

"The ANC has to come out and say the political mess that they've found themselves in is hurting the country, it's a clear case of mismanagement. And then they have to go into their lekgotla and make a tough decision," he said.

Read the full statement from Fitch here.