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S&P maintains South Africa’s junk status, warns of Covid-19 impact on growth

S&P Global Ratings has maintained South Africa’s sub-investment grade, warning that the impact of Covid-19 could see the economy shrink by 4.5% this year.

According to a report released on Friday, the country’s long term foreign and local currency debt ratings is kept at ‘BB-’ and ‘BB’ respectively. The agency maintained its stable outlook.

“COVID-19 will weigh heavily on GDP growth given the strict domestic lockdown that has shut down much of the economy, the markedly weaker external demand outlook, and tighter credit conditions,” S&P said.

“As a result, we now project the economy to shrink by 4.5% this year.”

The report follows an earlier note in April 29, where S&P lowered South Africa’s sovereign credit rating further into non-investment grade, or junk. S&P stated that the stable outlook reflects the balance between pressures related to very low GDP growth and high fiscal deficits against the country’s deep financial markets and monetary flexibility.

National Treasury said in a stated it has noted the report, stressing that government had acted decisively to prioritise the health and lives of all South Africans. They pointed at a risk-adjusted approach to reopening the lockdown, and further easing of restrictions expected from 1 June.

South Africa’s  sovereign credit rating is already ranked at ‘junk’ by Moody’s and Fitch.

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