London - Fitch Ratings on Thursday cut South Africa's sovereign credit rating to BBB from BBB-plus, citing rising social and political tensions and the inability of the government to implement effective reforms.
The decision by Fitch comes in the wake of similar moves by rival agencies Moody's Investors Service and Standard & Poor's last year.
"Economic growth performance and prospects have deteriorated, affecting the public finances and exacerbating social and political tensions," Fitch said in a statement.
Fitch has a stable outlook on the credit.
In October, S&P cut South Africa's credit rating by one notch to BBB with a negative outlook. At the time S&P cited concerns that mining strikes and social tensions could pressure the government to increase social spending, reducing already tight fiscal space and hurting growth.
In September, Moody's cut the rating to A3, which is still two notches above its rivals, citing worries about labor unrest and political instability in Africa's largest economy.
Economic growth and investor sentiment were hit by four months of wildcat strikes in the mining sector, which resulted in about 50 people dead.
Finance Minister Pravin Gordhan said during his October budget presentation the strikes had cost the economy $1.1bn.
Economic growth fell to 1.2% in the third quarter from 3.4% in the prior quarter. The effects of the strikes is expected to filter through to fourth quarter growth.
"Weak growth reflects structural rigidities, declining competitiveness, policy uncertainty and labor unrest," Fitch said.
On the positive side, Fitch cites the generally sound banking system, a deep local bond market, long maturities on debt, floating exchange rate and inflation-targeting regime as an effective shock absorber.Fitch downgrade expected
"The deterioration across a slew of South Africa's rating metrics had made a Fitch downgrade fairly likely for some time now," said Razia Khan, regional head of research for Africa at Standard Chartered.
"Inflation is higher, the current account deficit is wider, fiscal conditions have deteriorated and debt levels are worse than they were previously."
While acknowledging some of the concerns behind the downgrade, like poverty and unemployment, Treasury said some of the drivers included the financial crisis in the eurozone, which has slashed local exports due to close trade ties with the region.
"The government is consistently making efforts to address the concerns identified in Fitch's rating review which is aimed at mitigating growth and socio-economic concerns," it said in a statement.
Fitch was unswayed by the outcome from the ruling ANC's conference in December where it sought to reassure investors by pushing a development plan endorsed by several economists that includes measures to ease restrictive labour regulations.
The meeting also drove a stake through the heart of calls for a wholesale nationalisation of the country's mines and sent out a business-friendly message by electing one of the country's richest businessmen, Cyril Ramaphosa, as party deputy president.
"We ... thought the positivity after the conference could make (Fitch) pause. However, the underlying issues were deteriorating too much for them,' said Nomura analyst Peter Attard Montalto.
On the positive side, Fitch cited the generally sound banking system, a deep local bond market, long maturities on debt, floating exchange rate and inflation-targeting regime as an effective shock absorber.
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