Moody’s expects SA confidence to rise after poll

SA is expected to see a surge in confidence after the general election in May as President Cyril Ramaphosa’s administration continues to move forward gradually with implementation of its reform agenda, says Moody’s Investors Service.

“We expect that the government’s policies and the institutions will remain focused on addressing this trend, but any reversal will be gradual at best, given that social, economic and fiscal policy objectives will remain difficult to reconcile,” Moody’s senior credit officer Lucie Villa said in a report on Tuesday.

Despite slow growth and an erosion in fiscal strength, SA’s credit profile will remain in line with that of countries one notch above junk status, she said.

Moody’s expects growth of 1.3% in 2019, and 1.5% in 2020, in line with the Reserve Bank’s forecast for 2019 and slightly below the Treasury forecast of 1.5%.

SA had a reprieve in March when Moody’s did not pronounce on its ratings. It is the only major ratings agency that has not downgraded SA’s sovereign debt to subinvestment grade. It rates SA debt at Baa3, one notch above junk status, with a stable outlook.

Ramaphosa has made tackling corruption central to his policy plans and appointed new leadership at some key ministries and state-owned enterprises (SOEs), including Eskom, and at the SA Revenue Service.

“The main risk, however, is that members of the government turn out to be involved in state capture, thereby leading to a high turnover of ministers and with it, at times, policy uncertainty. The process will also take time to gain legitimacy.”

The ANC has been criticised for its list of election candidates, including figures mired in statecapture allegations or found to have lied under oath.

The Moody’s report says SA could see an upgrade in its credit rating with successful structural reform to raise growth and stabilise and eventually reduce the government’s debt burden through SOE reform, Villa said.

Moody’s expects the government debt and contingent liabilities to keep rising, and if growth remains at very low levels, such as the 0.8% in 2018, SA could be downgraded.

“SA’s key credit challenges stem from slow growth amid persistently high unemployment, particularly among the country’s young population. Deep socioeconomic inequalities not only make reform advancement difficult, which would otherwise unlock the economy’s potential, but also contribute to tensions that feed into political risk,” Villa said, warning that weak SOEs posed material fiscal risks.

“We anticipate that government policy and the institutions will remain focused on addressing this trend but any reversal will be gradual at best given that social, economic and fiscal policy objectives will remain difficult to reconcile,” she said.