S&P Global has cut South Africa’s credit rating to junk status.
The ratings agency said that South Africa’s political upheaval, including the recent sacking of finance minister Pravin Gordhan, was endangering the economy.
S&P also expressed concern over government debt, and in particular the expense of supporting the state energy firm Eskom.
The news put more pressure on the rand, which was down 2% against the US dollar.
Pravin Gordhan’s sacking, seen as a safe pair of hands and with a reputation for financial prudence, led to a 4% fall in the rand on March 31 and prompted strong criticism.
His replacement as finance minister by Malusi Gigaba was part of a cabinet reshuffle by President Jacob Zuma.
However South Africa’s deputy president, Cyril Ramaphosa, called Pravin Gordhan’s sacking “totally, totally unacceptable” and the Gwede Mantashe, secretary-general of the ruling African National Congress (ANC), also opposed it.
The financial downgrading is likely to make it more expensive for South Africa to borrow money on the international markets, as lending to the country would be seen as riskier.
S&P explained its decision, stating that: “Internal government and party divisions could, we believe, delay fiscal and structural reforms, and potentially erode the trust that had been established between business leaders and labor representatives (including in the critical mining sector).”
“An additional risk is that businesses may now choose to withhold investment decisions that would otherwise have supported economic growth,” it added.
Standard & Poor’s (S&P) has agreed to pay a $1.38 billion settlement to US regulators over allegations it knowingly inflated its ratings of risky mortgage bonds.
The deal with the Department of Justice also resolves 19 other lawsuits.
McGraw Hill – the parent company of S&P – said in a statement the “settlement contains no findings of violations of law”.
S&P is the first credit agency fined over financial crisis-era violations.
The settlement covers mortgage bond ratings between 2004 and 2007.
The bonds, which included sub-prime mortgages, were blamed for the collapse of the US property market and subsequent global financial crisis.
The DoJ filed civil fraud charges against S&P two years ago.
It accused the credit rating firm of giving top recommendations – known as triple-A ratings – to mortgage bonds that it knew contained sub-prime mortgage debt and were therefore not as safe an investment as the rating suggested.
The US government said that S&P’s ratings encouraged financial institutions around the world to buy and sell what proved to be “toxic” financial products in their trillions.
It also accused S&P of failing to warn investors that the housing market was collapsing in 2006 because doing so would have hurt its business.
At the time, S&P said the US government’s case was entirely without factual or legal merit.
“On more than one occasion, the company’s leadership ignored senior analysts who warned that the company had given top ratings to financial products that were failing to perform as advertised,” said Attorney General Eric Holder in a statement announcing the settlement.
“As S&P admits under this settlement, company executives complained that the company declined to downgrade underperforming assets, because it was worried that doing so would hurt the company’s business.
“While this strategy may have helped S&P avoid disappointing its clients, it did major harm to the larger economy, contributing to the worst financial crisis since the Great Depression.”
S&P will pay $687.5 million to the DoJ and a further $678.5 million to the 19 states that had brought lawsuits against it.
The ratings agency will also pay $125 million in a separate settlement with the California Public Employees’ Retirement System.
Standard and Poor’s has cut France’s credit outlook to “negative”, due to concerns about the country’s struggling economic recovery.
However, the credit rating agency affirmed France’s AA/A-1+ rating, the third-highest rating.
“We believe that…a recovery of the French economy could prove elusive,” said S&P in a statement.
France’s finance minister, Michel Sapin, said the country’s debt was “one of the surest in the world”.
“We will pursue the needed reforms, to boost our medium term growth prospects,” Michel Sapin said in a statement.
Standard and Poor’s has cut France’s credit outlook to negative, due to concerns about the country’s struggling economic recovery
“French debt is one of the surest and most liquid in the world, with debt levels very much contained,” he continued.
Official figures from the Bank of France showed that the French economy did not grow at all in the second quarter, and for the third quarter it is forecasting growth of 0.2%.
“We believe that…a recovery of the French economy could prove elusive and that France’s public finances might deteriorate beyond 2014,” S&P said.
S&P added that it expected France’s budget deficit will average 4.1% of GDP between 2014 and 2017, an increase from earlier projections of 3.2%.
The French government has also said it will reduce its budget deficit to below the EU threshold of 3% of GDP by 2017, two years later than promised.
S&P said the negative outlook indicated a one in three chance that certain events would occur which would push it to downgrade France’s actual credit rating within the next two years.
For now, S&P said France’s high income per capita and productivity, recovering competitiveness and profitability among French companies, and France’s stable financial sector justified the country keeping its current rating.
S&P last downgraded France in November 2013 when it cut its rating to AA.