Moody’s assigns negative outlook to South Africa’s rating

Credit rating agency, Moody’s has confirmed South Africa’s long-term government bond and issuer ratings at Baa2 and assigned a negative outlook, after placing it on review for downgrade on March 8, 2016.

Moody’s said South Africa’s ratings are due to its belief that the country is approaching a turning point, while the negative outlook is due to risks from new reforms agreed by government, business and labour to restore confidence and encourage private sector investment in South Africa.

“The confirmation of South Africa’s ratings reflects Moody’s view that the country is likely approaching a turning point after several years of falling growth; that the 2016/17 budget and medium term fiscal plan will likely stabilize and eventually reduce the general government debt metrics; and that recent political developments, while disruptive, testify to the Underlying strength of South Africa’s institutions,” the agency said.

The agency said it expects South Africa’s economic growth to gradually strengthen with an improvement in the loss of productivity to strikes, electricity supply, drought and inflation and interest rate hikes.

The debt to GDP ratio is also expected to stabilise at 51 per cent, with the government’s recent track record in achieving fiscal targets.

Moody’s however warned a downgrade is likely if growth fails to revive, government delays reforms to enhance economic competitiveness, or if investor confidence declines terribly to the extent that external financing would be insufficient to fund South Africa’s current account deficit on an extended basis.

By Emmanuel Odonkor