Published On: Tue, Apr 4th, 2017

South Africa’s junkies rating worry insurers

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Standard & Poor Global Ratings

Standard & Poor Global Ratings

JOHANNESBURG – THE insurance sector in South Africa has bemoaned the downgrading of the country’s long term foreign currency rating to BB+, commonly known as sub-investment or junk status.

The downgrade by Standard & Poor Global Ratings is the aftermath of a contentious cabinet reshuffle by President Jacob Zuma.

The South African Insurance Association (SAIA) says the first level of sub- investment grade was of grave concern with immediate, far-reaching and long-term negative implications for the economy and the society at large.

“As the representative body for the short-term insurance industry we are very concerned about the latest developments,” Chief Executive of the SAIA, Viviene Pearson, says.

“We note that S&P’s decision comes with a negative outlook, which could result in a further downgrade of our foreign currency rating, as well as impact negatively on the local currency rating.”

Pearson says the rating downgrade will impact on the government’s ability to raise debt on the foreign market, and will be at an unfavourable rate.

“Our already significant debt repayments will increase and foreign direct investment will be further curtailed.”

This will lead to job losses, increased inflation as well as high interest rates, further exerting pressure on already burdened consumers and businesses alike.

“What we need is a South Africa that is on the right path to achieve a stable and sustainable political, social and economic environment for all South Africans.”

On Tuesday, Rand Merchant Bank, in an update termed, “We are all junkies now”, said the loss of investment grade would come as a further psychological blow to a country that has obsessed with the issue for years and would entrench a higher cost of offshore borrowing.

It expressed worry S&P’s long-term local currency rating was now on the edge of sub-investment grade, still with a negative outlook.

“One more downgrade from it and South Africa will start to lose investments into the local bond market — the main source of financial inflows in the past few years,” RMB stated.

– CAJ News

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