Moody's downgrades S.Africa's debt outlook

9th November 2011, Comments 0 comments

Ratings agency Moody's on Wednesday downgraded South Africa's debt outlook from stable to negative, citing low growth prospects, strained public finances and rising poverty and unemployment.

"In Moody's view, spending beyond the substantial amounts already budgeted in response to such demands could push debt to levels more commensurate with lower-rated sovereigns," it said.

Moody's raised concern that economic growth will be slower than previously expected in the years ahead due to a weaker global economy and this would likely affect any rebound in employment levels.

The next two years will be "especially challenging for South Africa's political system, with the potential for further pressures emerging for the established economic policy framework."

Growth in Africa's largest economy slowed to 1.3 percent in the second quarter as the country battles the impact of the global financial crisis.

The opposition said the negative rating outlook would impact on confidence in the country's economy and force the government to pay higher interest rates on its debt in future.

"This means that fewer resources will be available for improving the lives of our people," said Dion George, the Democratic Party spokesman on finance.

George also blamed the government's failure to provide clarity on the nationalisation of mines and the hostility shown towards prospective foreign investors such as Wal-Mart.

Some sectors within the ruling party are pushing for the nationalisation of mines to redress the economic imbalances created by the apartheid government.

Moody's noted that nationalisation of the mines or other sectors, although unlikely to happen, would not achieve the stated aim of accelerating progress on black economic transformation.

"Higher domestic savings and investment rates would support a rating upgrade, as would sustainably stronger growth ... and the maintenance of sound economic policies by the current administration and its successor."

© 2011 AFP

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