Moody’s rating cut may be on the cards

SA has inched a step closer towards being junk-rated by Moody’s, which has warned the ANC government’s “radical economic transformation” policy agenda could deter investment.

In June, Moody’s cut SA’s sovereign credit ratings by one notch to the cusp of junk. It also retained the ratings on a “negative” outlook, expressing doubt over whether growth could be restored and debt stabilised in the current political climate.

Late last week, in a bleak research note on the South African economy, Moody’s lead sovereign analyst for SA Zuzana Brixiova indicated that the agency’s concerns were mounting. Its central fear was that with poverty deepening and unemployment high and rising, pressure to increase public spending in response could complicate fiscal consolidation and challenge the state’s reform commitment ahead of the 2019 polls.

Any slowdown in fiscal consolidation as a result of increased social spending would further weigh on business confidence, deterring investment and weakening longer-term growth.

Explaining in June why it had retained the “negative” outlook, Moody’s said it considered it unlikely that a political consensus would soon emerge that supported investment and reinvigorated the economic reform effort. “The opposite scenario of heightened political dysfunction, continued gradual institutional weakening and diminished clarity over policy objectives has a higher likelihood,” it warned.

That scenario appeared to be materialising, with Brixiova now noting that the government’s approach to “radical economic transformation” included several measures, such as land expropriation, preferential procurement and other forms of affirmative action that could deter investors.