Moody’s sets mood for downgrade

A sovereign credit-ratings downgrade of SA’s local currency debt by Moody’s Investors Service is almost a certainty as the agency issued a statement on Wednesday in which it painted SA in an unfavourable light.

A sovereign credit ratings downgrade of SA’s local currency debt by Moody’s Investors Service is almost a certainty as the agency issued a statement on Wednesday, painting SA in an unfavourable light.

Moody’s 2018 Sovereign Outlook showed that, despite a stable outlook for sovereign credit worthiness globally, SA maintained a negative outlook because the country’s politics remained a concern.

Economist Thabi Leoka said on Wednesday that a Moody’s delegation had an out-of-schedule visit to SA this week, highlighting the agency’s concerns.

Moody’s and the Reserve Bank declined to comment.

Leoka said a downgrade by Moody’s was inevitable. This was expected in two weeks.

In June, Moody’s cut both SA’s local and foreign currency denominated debt assessments to one level above subinvestment grade, or junk status, citing risks to growth and fiscal strength because of the country’s political outlook.

Moody’s is the only agency that has SA above junk status. A downgrade would result in SA’s exclusion from key indices.

In Wednesday’s Sovereign Outlook, Moody’s flagged SA’s downgrade earlier in 2017 as one of the most high-profile ones of the year, which had been effected in response “to its weakening institutions, declining growth and rising debt”.

“But progress is patchy; political uncertainty and social tensions can weaken the commitment to reform,” it added.

“The negative rating outlooks for Brazil, SA and Turkey reflect, in part, how electoral trends and corruption scandals have, to different degrees, weakened institutional strength and undermined the reform effort.”

Many economists expect SA to be downgraded on November 24 by both S&P Global Ratings and Moody’s following the badly received medium-term budget policy statement.

NKC economists Jason Dolan and Gerrit van Rooyen said Finance Minister Malusi Gigaba “indicated that the country will be increasing borrowings to help fund the wider budget deficit. The speech painted a bleak economic picture, with the Treasury now forecasting growth for 2017 at 0.7%, down from a previous forecast of 1.3%.

“The forecast of wider fiscal deficits and higher debt has heightened the risk of further credit rating downgrades.”

Investec chief economist Annabel Bishop expects SA’s long-term local and foreign currency sovereign debt to plunge into junk status with a sustained negative outlook.

Old Mutual Investment Group senior economist Johann Els said: “Multiple downgrades within the next six to 12 months are likely.”