South Africa escapes junk at Moody’s as rating cut by one step
JOHANNESBURG South Africa escaped wall-to-wall junk sovereign assessments from the three biggest ratings companies after Moody’s Investors Service downgraded the nation by one level to the lowest investment grade.
Moody’s cut the nation’s foreign-currency rating to Baa3, the company said in a statement on Friday. It kept the outlook at negative, meaning the next move could be to speculative grade. The firm also lowered South Africa’s localcurrency bond ceiling to A2 from A1, citing declining institutions, reduced growth prospects and fiscal erosion from rising public debt and liabilities as reasons for the change.
“The risks to growth and fiscal strength arising from the political outlook are tilted to the downside,” Moody’s said. “It is unlikely that a political consensus will emerge which supports investment in the economy and reinvigorates the reform effort sufficiently quickly to reverse the expected negative impact on growth and on the government’s balance sheet.”
S&P Global Ratings and Fitch Ratings Ltd. cut their foreigncurrency assessments of South Africa to junk in April after President Jacob Zuma on changed his cabinet and fired Finance Minister Pravin Gordhan. The decision sent the rand and bonds plunging, and sparked street demonstrations pushing for Zuma’s ouster and opposition parties to call for a noconfidence vote in parliament.
Several top leaders in the ruling African National Congress have said the party risks losing power in 2019 elections if he’s allowed to complete his second five-year term.
S&P cut South Africa’s foreigncurrency debt to junk on April 3 and left the local rating at the highest non-investment grade. Fitch reduced both assessments to junk four days later, triggering a selloff by some investors tracking investment-grade debt indexes. JPMorgan Chase & Co. said in April it would remove the nation’s dollar-denominated debt from gauges tracked by US$59 billion of funds.
The bulk of investments in global index-tracking funds remain safe as about 90 per cent of the country’s debt portfolio is randdenominated and only Fitch rates local-currency obligations at noninvestment grade.
The National Treasury’s key focus “is to safeguard confidence and reclaim the investment-grade ratings,” it said in a June 2 statement after S&P affirmed South Africa’s foreign-currency debt at the highest junk assessment, and rand-denominated bonds at the lowest investment grade.
Fitch maintained its ratings at the highest non-investment grade on June 1.
South Africa’s economy unexpectedly fell into a recession for the first time since 2009 in the first quarter as all but two industries shrank, the statistics office said June 6.