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S.Africa’s Long-Term Local Currency Rating Lowered, outlook still negative

Overview

South Africa continues to depend on resident and nonresident purchases of rand denominated local currency debt to finance its fiscal and external deficits. 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.

We also believe 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.

Rating Action

On Dec. 2, 2016, S&P Global Ratings lowered the long-term local currency rating on the Republic of South Africa to ‘BBB’ from ‘BBB+’ and affirmed the ‘A-2’ short-term local currency ratings. We affirmed the long-and short-term foreign currency ratings at ‘BBB-/A-3’. The outlook on the long-term ratings remains negative.

At the same time, we affirmed the ‘zaAAA/zaA-1’ South Africa national scale ratings.

Rationale

We have lowered the long-term local currency ratings on South Africa because its fiscal financing needs are increasing beyond our previous base-case expectations, while the proportion of rand turnover in the global foreign exchange market has declined over the last three years.

South Africa continues to depend on resident and non-resident purchases of rand denominated local currency debt to finance its fiscal and external deficits. Its financing needs have increased beyond our previous base case, with general government debt set to increase by an average of 4.9% of GDP over 2016-2018, compared to our previous estimate of 4.1% for the same period.

The proportion of rand in global foreign exchange turnover has also declined to just below 1% on average over the past three years. More broadly, we believe political events have distracted from growth-enhancing reforms and persistently low

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