Fitch downgrade sees rand slide to R19 against the dollar

The downgrade comes one week after Moody’s cut SA’s last investment-grade rating to junk.
Finance Minister Tito Mboweni said the government is seized with minimizing the impact of downgrades and Covid-19. Image: Scott Eells/Bloomberg

Rating agency Fitch sunk South Africa deeper into junk status on Friday, a move which saw the rand breach R19 to the dollar. 

SA’s ratings were downgraded one notch further into sub-investment grade with Fitch blaming the country’s “lack of a clear path towards government debt stabilisation as well as the expected impact of the Covid-19 shock on public finances and growth”. 

Downward spiral

The negative outlook, “reflects the prospect of further significant upside pressure on government debt and additional downside risks associated with the global shock,” it added.

The agency forecasts that the country’s economy will contract by 3.8% in 2020 only recovering slightly to 1.7% in 2021. 

“The contraction primarily reflects a 21-day lockdown, during which large parts of the economy, including most mines and manufacturing plants, have ceased operating,” saying even if the lockdown is not extended many sectors will be disrupted and global demand will not recover any time soon. 

Read: Moody’s junks SA at the ‘worst time’

Fitch’s downgrade comes a week after Moody’s snuffed out SA’s last investment-grade rating citing continued deterioration to public finances, the slow pace of reform, rising public debt, and an inability by government to stimulate the economy. 

Debt surpasses the median

It further stated that constrained electricity supply and the impact of the Covid-19 pandemic would only exacerbate the country’s weak economic climate.

“In the midst of the prevailing financial market stress emanating from Covid-19 and credit ratings downgrades by Moody’s and Fitch, the government reiterates its commitment to implement structural economic reforms to address the weak economic growth, constrained fiscus and ailing state-owned companies,” said the National Treasury in a statement noting the Fitch downgrade.

Fitch said the country would be battling the global Covid-19 crisis when public finances are in a poor position. It estimates that fiscal debt will surge to 11.5% of GDP this year from 6.6% in 2019. It further expects government debt to rise from 64% of GDP in 2019 to 80.2% in the 2021/2022 financial year, “well above the 2019 ‘BB’ category median of 46.5%”. 

Read: The downgrade and your investments

“To assure all South Africans, government is seized with addressing and minimising the impact of Covid-19, implementing measures to improve economic growth and setting government finances on a sustainable trajectory. This work requires close collaboration and coordination across various sectors of the economy,” Finance Minister Tito Mboweni, said. 

Treasury said a positive was Fitch’s acknowledgement of the country’s resilience to external shocks even as its spirals into junk and global financial markets are aflame. 

The agency said it did not “expect acute problems in fiscal financing, partly reflecting the unusually long-average maturity of government securities (15 years) and the low share of foreign-currency debt in total debt (10%)”.

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Minister Tito Mboweni: “…government is seized with addressing and minimising the impact of Covid-19, implementing measures to improve economic growth and setting government finances on a sustainable trajectory.”

Well, I hope you have a focused chat to Ebrahim Patel. He is still dead set on taking us on a non-refundable cruise to Socialist Nirvana.

100% correct – the seized state started years before covid-19, by an incompetent / corrupt / looting / cadre pal / government.

wonder how long will the anc will use covid-19 as an excuse for the economical state that sa is in – there is a definite difference between a medical disaster with a temporary economical effect and a long term messed up country by its own incompetent government who wants to use capitalism just when it suits them for political purposes

Look on the bright side, now they will forget to blame apartheid and EWC.

Spot on. Two individuals, Rob Davies and Ebrahim Patel… Appointed by Zuma
Rob Davies … SA Communist Leader,
Ebrahim Patel … Union leader of the clothing sector.
They firmly set their own agenda’s, not the agenda for the Economic growth of SA.
Ebrahim Patel…on his entry into Government…. only looked after the Clothing Sector… to no avail …. its still non productive… the Asian countries have a strong hold on this.

Rob Davies … focused on protectionism … high tariff barriers … now someone with a brain can see these are only short term measures … explains why our country is so messed up in the long run.

Hopefully Tito does some black magic on Mr Patel… that passes through the wax in his ears.

A tender to sell SA as ” voetstoots ” may be the answer.

Not even BEE consortiums would be interested.

Sell it to the Chinese…they have particular interests in Africa

You right!

Watch this space … when the market collapses … the Chinese will buy the JSE out…big time.

The Chinese can shop SASOL without a blink at its current price.

The reality is if SA accepts a IMF bailout, the first things they will do is :

–> increase interest rates to protect the currency from going into
free fall.

–> stop all “quantitative easing” – money printing that increase SA
overall debt

–> reduce government wage bill.

–> set strict targets on reducing debt to sustainable levels.

SA debt is now going to R4 trillion rand debt and funny thing is Tito & SARB are doing exactly the opposite to what the IMF will do.

Expansive growth strategy that does not work, SA has nothing to show for the past 10 years of increased debt. Normally when debt increase there is a payback for the country in terms of GDP , we missed that boat.

With potentially huge SOE liabilities being realized as SA debt in the books of government, the SARB and ANC are failing the people of this country in a spectacular way.

We are in serious trouble…

Who says an IMF bailout is the only option?

There is of course the option of the BRICS Bank and China

10 Sub Saharan Countries are indebted to China upwards of R1,4 Trillion

China is Africa’s new colonialists having slowly worked their way into our rural towns, Lesotho, Botswana ,Mozambique, Namibia and many more

They know how corrupt African Countries are, so their money flows freely knowing full well these countries cannot repay the debt as the corruption is rife, the elite walk off with the spoils and the poir are left desolate

Best we start learning to speak Mandarin, soon to be our 12th official language!

Zimbabwe No 2.

Soon to be upgraded to ver 2.01 (Virus included in this update)

The reality is if SA accepts a IMF bailout, the first things they will do is:

STEAL IT.

The ANC are hopefully regretting forcing the ratings division of Fitch, and S&P, out of SA within 24hours after their initial downgrading of SA to junk.

Alls forgiveness now

Dumber . . . dumber . . . dumbest government on Earth.

But this just cannot be! It must be fake news. After all, the ANC have so many structural reforms underway. I mean there is, for example, progress on the roll out of set top boxes (after twelve year delay), isn’t there?
And there are so many other issues being discussed, so many job summits being planned and so many investment conferences scheduled.
Maybe S.A. should set up its own rating agency. start by awarding itself a triple A rating and give Zimbabwe a double A.

Welcome to Animal farm. Read the book.

I can’t, it was stolen last night by a lovely man who also wanted my TV

SA is a bit like the sinking of the Titanic – there aren’t enough lifeboats to save the citizens and those that don’t maker the lifeboats (filled with fat cat politicians) freeze to death in the water. Ultimately those in the lifeboats may survive for some time but many will perish through elements like – no water, no food, no idea in which direction to go and most importantly rudderless and oarless

AND one a positive note

NHI and EWC are on the back burner

Yes Johan, and have you observed how they intentionally avoid calling one-another Comrade lately? They address each other as Colleague instead. Maybe someone has told them that nobody with a brain will invest in a country where the leaders call each other “comrade”.

I think this is a great step I’m the right direction, but at this stage, this decision is nothing more than lipstick on a pig. They should remove the “comrades” before they will gain credibility. Ebrahim Patel, Gwede Mantashe, Ace Magashule and the rest of the communists should be “locked down” in Pollsmoor.

You right… I heard Ebrahim Patel… use the word “My Colleague” … “My Colleague” … “My Colleague”
Guess the Virus had a positive impact on the ANC …after 26 years… they say things in a better way

Guys when bond rates hit 12% and the reserve bank lowers interest rand this can only mean one thing: the rand is toast and headed for a massive depreciation. When bond rates rise the SARB needs to raise interest rates not lower them? The fiat tsunami is hitting the country, the speculators are making mint, capital is fleeing in droves and the price of basic commodities is set to rocket. Who the heck does the SARB think they are helping? not the poor by any stretch of the imagination. SARB are acting as if they are a first world country. In the US and A, they lower interest rates and money flows into the bond market which creates more deflation. In South Africa the money flows out of bonds ahead of a massive expectation of inflation and into the commodities market which raises prices and overseas. I guess the lesson learned is a central bank can create money but not dictate where it goes.

Absolutely, with dollar/rand on R14.00 at the beginning of the year and now at R19.00. All investors have lost 35% of their capital in SA.

Before you can talk about any foreign investment / inflow of capital into the country you need to hold the value of the Rand stable as is one of the principles of a fiat currency.

Those like SA that can’t follow the “underlying principle” of a fiat currency will be severely punished by the market.

Nobody in the world wants to lose 35% on your capital invested, let alone the drop of 20% in equities as a result of the current pandemic. That is a total loss of 55% if you are invested in shares in 4 months.

Crazy stuff and any international pension fund out there will cut their losses and move on to countries that can and try to maintain their currency value.

Putting fuel on the fire like dropping interest rates is like throwing a middle finger to all those international investors.

Can’t it be that some of these donations pump up the economy by investing in townships. At least 1 in 100 South African should own a business and that business is funded by the government.

Also why are we not loaning the neighboring countries, creating our own African bank? Wouldn’t that create a better trade deal for Africa?

From the look of things, the recovery of the economy is worse than COVID-19

South Africans are innovative people. They have a wonderful entrepreneurial spirit. The problem is that every political-economic system directs entrepreneurship in a certain specific direction. A free-market capitalist system enables, motivates and rewards entrepreneurs to serve the consumers. This system enforces accountability and individualism. Under such a system, entrepreneurs become successful farmers, street vendors, shop owners, taxi-owners and service providers. The best individuals rise to the top in such a society.

The socialist or collectivist system, on the other hand, enables, motivates and rewards entrepreneurs to exploit society at a maximal rate. Entrepreneurs use the power of their vote to change the law to legalise plunder. They make BEE laws, Mining Charter laws, Cadre-deployment laws, tax laws and other socialist interventions that enable the Zamma-Zamma industry, the Construction Mafia and BEE plundering. The worst, most unscrupulous individuals rise to the top in such a society.

My point is this – true entrepreneurs do not need donations. They only need the appropriate political-economic system to direct their efforts in the right direction, the solutions that benefit society at large.

Our problems of unemployment, a shrinking economy, a decimated tax base and rising poverty are entirely self-inflicted. The mindset of waiting for donations will only accelerate the rate of decay.

End of comments.

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