Home News Moody’s keep South Africa’s credit rating unchanged

Moody’s keep South Africa’s credit rating unchanged

Published on 26/11/2016

International credit rating firm Moody's has left South Africa's sovereign debt grading unchanged two notches above junk status, but warned Saturday that the country is not yet out of the woods.

Moody’s still rates Africa’s most developed economy as Baa2 — meaning it is of investment grade for banks — albeit with a negative outlook.

Instead of the much anticipated formal review of South Africa’s credit rating, Moody’s issued an updated credit opinion overnight, warning that the negative outlook remained because of continuing political tensions and weak growth.

“The negative outlook on South Africa’s Baa2 government bond rating reflects risks related to the implementation of structural reforms aimed at restoring confidence and encouraging investment,” it said in a statement released early Saturday.

Moody’s warned that South Africa’s rating “would likely be downgraded in the absence of fundamental structural reforms supporting higher and sustainable medium term growth”.

It added that the country’s political scene continued to be “noisy” but that key institutions remained resilient.

One of the credit challenges for South Africa is “protracted political infighting that generates policy uncertainty and impedes structural reforms,” it said.

Hours earlier, another international credit rating firm, Fitch, had dropped its outlook for South Africa from stable to negative, citing the country’s recent political turmoil under President Jacob Zuma.

Zuma has been engulfed by graft scandals and a power struggle with Finance Minister Pravin Gordhan, while economic growth has fallen to 0.5 percent from last year’s 1.3 percent and unemployment has hit a 13-year high.

Moody’s also hinted that a rating upgrade was unlikely.

Standard & Poor’s is expected to make its key announcement on South Africa’s investment grading on December 2.

Like Fitch, S&P currently has South Africa rated at the lowest investment grade.

A junk rating by S&P could trigger a bond sell-off by foreign investors, as well as hiking Pretoria’s borrowing costs.

In a statement the government said the latest decisions by the ratings firm showed that the South African “economy is showing resilience.”

North-West University economist Raymond Parsons said that while the decisions by the two agencies were “generally positive news”, there was still need for greater efforts to pull the country back from the brink of junk status.

South Africa “has again been put on notice to get its house in order,” said Parsons.

The main opposition Democratic Alliance said Friday’s decision by Fitch to revise downwards South Africa’s sovereign credit rating to a negative outlook “is a massive indictment of President Jacob Zuma’s leadership on the economy”.