* Prospects for Africa's biggest economy deteriorated -
* Fitch move expected after S&P cut in October
By Daniel Bases and Caryn Trokie
NEW YORK, Jan 10 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 rand weakened to a month's low against the
dollar after the downgrade, which follows similar moves by rival
agencies Moody's and Standard & Poor's last year and could hit
government debt when the market opens on Friday.
The economic growth performance and prospects for Africa's
biggest economy had deteriorated, affecting public finances and
exacerbating social and political tensions, Fitch said in a
"Subdued growth, coupled with rising corruption and
worsening government effectiveness, have constrained the
government's ability to improve living standards, reduce the
25.5 percent unemployment rate and redress historical
inequalities as rapidly as the population demands," it added.
Fitch however changed the outlook on South Africa's credit
to stable from negative, saying the country's credit strengths
limited likelihood of a further potential downgrade over the
typical two-year outlook horizon.
The Fitch move was largely expected after S&P cut South
Africa's credit rating by one notch to BBB in October, with a
It cited concerns that mining strikes and social tensions
could pressure the government to increase social spending,
reducing already tight fiscal space and hurting growth.
A month earlier, Moody's had 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 violent wildcat strikes that swept through the crucial
mining sector and left more than 50 people dead.
Finance Minister Pravin Gordhan said during his October
budget presentation the strikes had cost the economy $1.1
Economic growth fell to 1.2 percent in the third quarter
from 3.4 percent in the prior quarter. The effects of the
strikes were expected to filter through to fourth quarter
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
"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, South Africa's
Treasury said some of the drivers included the financial crisis
in the euro zone, 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
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
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.