There’s little chance Moody will downgrade South Africa’s investment grade credit

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Reuters reports that some respite after the economy moved into recession, was given to President Cyril Ramaphosa, when Moody’s Corporation, an American business and financial services company, said there was little chance it would strip South Africa of its investment grade credit.

Moody however noted it was imperative for South Africa to keep its finances right, for the rating to be kept for a longer term. The company said recovery will be slower than the Treasury’s estimate of 1.5 percent growth for 2018 after a surprise contraction in the first two quarters.

In an interview with Reuters, Lucie Villa, Moody’s Lead Analyst for South Africa, said “growth is going to be below 1 percent, to what extent it’s difficult to say”. She however dismissed the idea of a possible downgrade at a review scheduled for next month. She noted that “South Africa has a stable outlook…there’s little chance of a rating action”.

Nhlanhla Nene, South Africa’s Finance Minister, also said South Africa was committed to implementing a prudent fiscal policy, aimed at stabilising the ratio of its debt to gross domestic product. Nene also assured that the government was working on a package of measures to stimulate economic growth by reprioritising existing resources.

Economic data has pointed to a mixed start to the third quarter since the recession. South Africa, which happens to be Africa’s most developed economy, needs faster economic growth if it is to reduce unemployment- currently at 27 percent.

Villa acknowledged the fact that South Africa’s debt had a long maturity and that very little of the debt was foreign currency dominated, played to the country’s strengths. She noted that Moody will pay attention to the next budget statement to assess the government’s commitment to fiscal consolidation.

Villa also said assuming the bank’s mandate would not be affected, plans by the  ruling party, African National Congress, to nationalise the Reserve Bank were not “rating relevant”.

 

 

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