Rand rallies as SA dodges junk bullet

Cape Town -  The rand strengthened sharply to under R13.90 to the US dollar after S&P Global affirmed South Africa's credit rating at BBB-. 

S&P announced its ratings decision late on Friday, keeping South Africa's sovereign credit rating at one notch above sub-investment grade, with a negative outlook. 

South Africa's local currency rating, however, was downgraded from BBB+ to BBB, by and large because the budget deficit hasn't narrowed in the medium-term budget review delivered in October 2016. 

READ: Junk breather for SA, but S&P lowers local currency rating

"We affirmed the long-and short-term foreign currency ratings at 'BBB-/A-3’,” S&P said in its statement. The outlook on the long-term ratings remains negative.

ANC treasurer general Zweli Mkhize said earlier South Africa doesn't deserve a ratings downgrade by S&P, as the situation in the country hasn’t deteriorated so much over the last couple of months justifying a credit ratings downgrade.

S&P cautioned that South Africa continues to depend on resident and nonresident purchases of rand-denominated local currency debt to finance its fiscal and external deficits.

FULL S&P STATEMENT: SA survives junk hurdle

"Its financing needs have risen beyond our previous expectations, with general government debt set to increase by an average of 4.9% of GDP over 2016-2018, to reach gross debt of 54% of GDP in 2019.

"The proportion of rand in global foreign exchange turnover has also declined to just below 1% on average over the past three years."

S&P said it also believes political events have distracted from growth-enhancing reforms, while low GDP growth continues to affect South Africa’s economic and fiscal performance and overall debt stock.

"We are therefore lowering our long-term local currency rating on South Africa to 'BBB'. We are affirming all other ratings.

"The negative outlook reflects the potentially adverse consequences of persistently low GDP growth for the public balance sheet."