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South Africa’s economy will contract by more than initially projected, likely shrinking 6.9 per cent in 2020 compared to an earlier forecast of a 4.5 per cent contraction, ratings agency S&P Global Ratings said on Monday in a report.

South Africa has the highest number of confirmed coronavirus cases in Africa, with more than 270,000 infections, and 4,000 deaths, and is now recording the fourth-largest daily increase in new cases worldwide at more than 12,000 per day.

“The pandemic situation in the country has worsened since our previous macroeconomic update, leading to a further hit to confidence, which was already low before the pandemic, amid lack of growth and concerns about the fiscal trajectory,” the firm said.

S&P along with the other two main ratings firms, Moody’s and Fitch, already rate the country’s debt at below investment status, or junk. S&P cut its rating one notch to the third tier of non-investment grade, BB-, in April, with a stable outlook.

SEE ALSO: South African anti-corruption watchdog probes Covid-19 tenders

S&P’s growth forecast is however more optimistic than National Treasury’s prediction of a 7.2 per cent contraction this year. Treasury predicts debt to gross domestic product will breach 80 per cent as government borrows more to fund its response to the pandemic.

To cushion the economic blow of the pandemic on the economy, President Cyril Ramaphosa announced a 500 billion rand ($28.86 billion) relief package in April, equivalent to 10 per cent of South Africa’s GDP.

“The sizeable fiscal package will only partially mitigate the economic toll, but coupled with lower revenues, will lead to a significant increase in government debt, further impairing public finances,” the ratings agency said.

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