Global ratings agency downgrades South Africa

Cape Town, South Africa (PANA) – International ratings agency, Moody’s, on Friday night downgraded the outlook for its credit rating of South Africa from “stable” to “negative”.

This marks the final step before it strips South Africa of its “investment grade” Baa3 long-term foreign-currency and local-currency issuer rating, which will leave it at “junk status” and plunge the economy into a deep hole.

"The negative outlook signals is part of Moody's rising concern that the South African government will not find the political capital to implement the range of measures it intends, and that its plans will be largely ineffective in lifting growth," it said in a statement received by PANA.

It noted that while Pretoria is attempting to address issues like unemployment and low growth, it has faced obstacles "from outstanding vested interests and the social and political challenge of imposing measures that are initially likely to be detrimental for parts of the population”.

It added that while high unemployment, income inequality and the social and political challenges are long-standing features in South Africa, the obstacles that they pose to the government's plans to raise potential growth and contain fiscal deficits are proving more severe than expected a year ago.

"Acute financial stress for state-owned enterprises, in particular (electricity supplier) Eskom, continues to require sizeable ongoing support from the government. The development of a credible fiscal strategy to contain the rise in debt, including in the 2020 budget process and statement, will be crucial to sustain the rating at its current level."

The announcement follows this week’s budget policy statement which reflected a bleak picture of the state of government expenditure.

However, Moody's noted the "country's deep, stable financial sector and robust macroeconomic policy framework" and the Reserve Bank’s efforts to implement credible and effective monetary policy and preserving financial stability. 

“Moreover, the government remains committed to fighting the so-called 'state capture', even though the process will take time to gain legitimacy and show results in improved institutions and business environment," it said.

–0– PANA CU/VAO 2Nov2019