South Africa: Fitch drops local currency debt rating

(AGI) - Cape Town, Jul 26 - Fitch Ratings Agency's downgrade of South Africa's local currency debt rating is a timely reminder of the risks of a credit downgrade down the line, the country's National Treasury Department said today. The agency on Monday night aligned South Africa?s long-term local currency rating to the long-term foreign currency rating at ?BBB-? with a stable outlook. In effect, it dropped it one level to bring it into line with the nation?s foreign-currency rating. ?Although the action represents an alignment, it also serves as a timely reminder of the risks of a downgrade that lie ahead and the urgency of actions required to reinvigorate the economy,? the Treasury Department said in a statement. ?We must persist with, and redouble our efforts to work together ? government, business and labour ? to improve our growth prospects and to create more business and work opportunities," it added. So far this year, Fitch, along with fellow ratings agencies Moody's and Standard & Poor, have resisted downgrading South Africa's credit rating during its rating reviews, deciding to keep the country's status above non-investment grade or junk status. However, they warned that South Africa needed to address its political and growth concerns. Speaking at a business breakfast in Johannesburg this morning, South Africa's Finance Minister Pravin Gordhan said government and the private sector need to work to keep the economy growing at above 0% to avoid a credit downgrade in December. "The country is sitting at 0.58% of GDP and needs to hit 1.5% as a target. Once that is done, the country can focus on what needs to be done afterwards," he said. Improving infrastructure is crucial for the development of South Africa and the African continent. It encourages investment and creates job opportunities, Gordhan said. Fitch recently updated its Sovereign Rating Criteria, which is the methodology it uses to rate all sovereigns. Following the publication of the updated methodology, the agency then held a Sovereign Portfolio Review Committee of all its existing sovereign ratings on 19 July 2016. The review was aimed at assessing the relationship between existing rating of long-term local and foreign currency debt in line with the guidelines in the updated criteria. The revised guidelines by the agency reflect their assessment that the credit risk profile of sovereign local and foreign currency debt should be closely aligned. (AGI) .