Moodys downgrades SA's rating to Baa3

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Ratings agency Moodys has arrived in Africas most advanced economy to assess whether to downgrade the country to one level above junk status. The local economy is set to weaken to near-zero percent growth this year.

WINDHOEK – Moody’s Investors Service downgraded South Africa’s rating to Baa3 on Friday and assigned a negative outlook.

Moody’s also downgraded the government’s senior unsecured short-term program rating to (P)P-3 from (P)P-2. The rating actions conclude the review for downgrade that commenced on April 3.

National Treasury noted the downgrade on Friday and called on South Africans to work together to avoid further downgrades.

“While the ratings are still investment grade, the negative outlook indicates that the risk of further downgrades is still there. On that note, the government calls on all South Africans, including the private sector and trade unions to work even harder together to address these concerns,” National Treasury said in a statement on Friday night.

“The negative outlook reflects continued downside risks for growth and fiscal consolidation associated with the political outlook. Over the medium-term, economic and fiscal strength will remain sensitive to investor confidence and hence uncertainty surrounding political developments, including prospects for structural reforms intended to raise potential growth and flexibility in fiscal expenditures, according to Moody’s.”

Moody’s said that over the medium-term, economic and fiscal strength would remain sensitive to investor confidence and uncertainty surrounding political developments, “including prospects for structural reforms intended to raise potential growth and flexibility in fiscal expenditures”.

In a related decision, Moody’s also downgraded to Baa3 from Baa2 the backed senior unsecured debt issued by ZAR Sovereign Capital Fund Propriety Limited, a special purpose vehicle whose debt issuance is ultimately the obligation of the South African government, and assigned a negative outlook.

“The key drivers for the downgrade are the weakening of South Africa’s institutional framework; reduced growth prospects reflecting policy uncertainty and slower progress with structural reforms; and the continued erosion of fiscal strength due to rising public debt and contingent liabilities,” Moody’s said in a statement.

“The Baa3 rating recognises a number of important strengths that continue to support South Africa’s creditworthiness. However, the negative outlook reflects the continued downside risks for growth and fiscal consolidation associated with the political outlook.”

The Democratic Alliance said Moody’s decision was more bad news and was a clear “vote of no confidence” in Finance Minister Malusi Gigaba and President Jacob Zuma.

“The decision by Moody’s highlights the fact that “political developments” have had a negative effect on “institutional strength” which “casts doubt over the strength of and sustainability of the recovery in growth and stabilisation of the debt-to-GDP ratio over the near term”, DA finance spokesperson David Maynier said.

“We will not sit back and do nothing when the economy has slipped into recession, and when a staggering 9.3 million people do not have jobs or have given up looking for jobs, in South Africa.”

Maynier said that the rating action meant South Africa’s long-term local currency debt, which forms 88.2 percent of our R2.2 trillion net debt, now hovers dangerously at one notch above “junk status”, with a negative outlook.