S&P downgrades South Africa debt to ‘BB-‘ amid virus impact

S&P Global Ratings on Wednesday lowered the credit rating for South Africa by one notch to “BB-” due to the “significant adverse implications” of the coronavirus pandemic on the country’s already weakened economy.

“South Africa’s already contracting economy will face a further sharp COVID-19-related downturn in 2020,” after contracting in the second half of 2019 due partly to the severe rolling power blackouts, the ratings agency said.

While the agency said the early efforts to contain the spread of the virus have limited the health impact, “the COVID-19 health crisis will create additional and even more substantial headwinds to GDP growth.”

Coronavirus infections rose to nearly 5,350 cases and 103 deaths — the highest in Africa — though the spread has slowed and President Cyril Ramaphosa announced he will begin to gradually ease the five-week lockdown starting Friday.

“Government is disappointed by S&P’s decision to downgrade the sovereign rating at a time when South Africa is facing one of its most challenging times,” the treasury said in a statement.

“Structural reforms need to be urgently implemented in order to get the economy moving in the right direction.”

S&P projects the South African economy will shrink by 4.5 percent this year compared with the November 2019 estimate of growth of 1.6 percent.

Ramaphosa last week unveiled a large economic support package totalling about 500 billion South African rand (ZAR), which is about 10 percent of GDP. However, S&P said some of that can be financed by the International Monetary Fund and other development lenders.