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South Africa's failure to lower debt could trigger downgrade – Fitch

Juan Carlos Carvallo
South Africa's failure to lower debt could trigger downgrade - Fitch

JOHANNESBURG, July 15 (Reuters) – A failure by South Africa to lower public debt risks triggering credit downgrades deeper into subinvestment, Fitch said on Wednesday.

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Debt in Africa’s most industrialized economy is set to breach 80% of gross domestic product next year as the government borrows more to bring the coronavirus pandemic under control.

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Fitch downgraded South Africa’s credit rating deeper into “junk” territory in April, citing the lack of a clear path towards debt stabilisation and higher economic growth. The other top ratings firms, Moody’s and S&P, also rate the country at sub-investment grades.

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“A continued rise in government debt/GDP and failure to formulate a clear and credible path towards stabilising the government debt/GDP ratio could lead to a further downgrade in South Africa’s ‘BB’ rating, which is on Negative Outlook,” said Jan Friederich, Fitch’s head of Africa sovereign ratings.

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Finance Minister Tito Mboweni said in an emergency budget in June the Treasury would stick to its promise of some 230 billion rand ($13.5 billion) of spending cuts in the short term, a target set in February before the COVID-19 pandemic

“Social and political factors, including exceptionally high inequality, powerful trade unions, and deep divisions within the governing African National Congress, present significant hurdles to fiscal consolidation,” Friederich said in a research report. (Reporting by Mfuneko Toyana Editing by Mark Heinrich)