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Fitch drops S. Africa's outlook to negative

Xinhua, November 26, 2016 Adjust font size:

Rating agency Fitch on Friday changed South Africa's outlook from stable to negative, citing the country's political troubles.

Meanwhile, the agency affirmed the country's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at "BBB-", which is one notch above sub-investment.

"The issue ratings on South Africa's senior unsecured long-term foreign- and local-currency bonds have also been affirmed at 'BBB-'," Fitch said in a statement.

The Country Ceiling has been affirmed at "BBB", while the Short-Term Foreign and Local Currency IDRs and the issue ratings on senior unsecured short-term local currency securities have been affirmed at "F3".

The rating on the RSA Sukuk No. 1 Trust has also been affirmed at "BBB-," in line with South Africa's Long-Term Foreign Currency IDR.

The revision of the Outlooks on South Africa's Long-Term IDRs to Negative reflects that political risks to governance and policy-making have increased and will remain high at least until the electoral conference of the African National Congress (ANC) in December 2017, negatively affecting macroeconomic performance, Fitch said.

The conference will elect a new ANC leader, who will be the ANC's presidential candidate in national elections in 2019.

The infighting inside the ANC and the government is likely to continue over the next year, Fitch said.

In Fitch's view, this will distract policymakers and lead to mixed messages that will continue to undermine the investment climate, thereby constraining GDP growth

The South African economy may have started recovering from a series of shocks, but business confidence remains depressed and investment has continued to contract.

"We expect only modest GDP growth of 1.3 percent in 2017 and 2.1 percent in 2018, although this is an improvement from 0.5 percent in 2016," Fitch said.

The economy had been hit in 2015 and 2016 by electricity shortages, the worst drought in decades, a sharp fall in international prices for some of South Africa's main mining commodities and rising policy uncertainty.

South Africa has been racing to avert a sovereign rating downgrade to "junk" status that would raise its borrowing costs and deter investment.

Another ratings agency, Moody's, is also expected to make an announcement on South Africa later Friday.

The current rank assigned by Moody's is two notches above sub-investment grade (with a negative outlook). Endit