SA dodges ratings bullet as Moody’s skips review
SOUTH Africa has dodged a bullet, for now, after Moody’s Investor Services skipped its scheduled review of the country’s credit rating on Friday.
This could mean that the agency needs more time to assess South Africa’s economic prospects amid the Covid-19 vaccine roll-out and threats of a third wave of the pandemic.
The credit rating agency was scheduled to release its review, however, issued a note indicating that “no ratings were updated for” South Africa, and Italy and Denmark, among other countries.
It also did not indicate when the next ratings announcement would be.
It is possible that Moody’s requires more time to determine whether South Africa’s sovereign rating has any prospect of changing for the better, as the country is ramping up its Covid-19 vaccination programme.
The government is also locked in negotiations with public sector worker unions over wages as it tries to freeze salary increases over the medium term to shore up the fiscus.
South Africa’s economic growth is forecast to rebound to 3.4 percent this year from a 7 percent contraction last year, because the global economy is recovering due to the distribution of vaccines.
In a separate report, Moody’s said global trade has rebounded and would continue to recover this year, although a resurgence of the virus and uneven recoveries across countries threaten the recovery.
“Geopolitical tensions, new sanctions and export controls, and domestic policy focus will complicate trade negotiations,” it said.
“Supply-chain considerations will drive shifts in business strategies in strategic sectors.”
In November last year, Moody’s downgraded South Africa’s rating to Ba2 with a negative outlook, because of concerns over rising government debt and deteriorating fiscal metrics.
South Africa’s borrowing trajectory increased sharply last year to meet the fiscal stimulus needs presented by the pandemic, while revenue declined because of lockdown restrictions.
Following an improved Budget Review in February, Moody’s warned that the slightly lower budget deficit would not prevent the government debt from rising, and that downside risks remained elevated.
Economists were not expecting a downgrade from Moody’s South Africa’s bonds deeper into junk, although they expressed concern over the slow pace of economic recovery.
Citadel Global director Bianca Botes said they were not expecting Moody’s would spare South Africa for now, although state-owned enterprises were deteriorating.
“While we are not anticipating a downgrade, we do expect the agency to remain critical of the fiscal position, the economic growth trajectory, as well as the state of state-owned enterprises, in particular Eskom,” Botes said.
Anchor Capital’s investment analyst, Casey Delport, predicted that Moody’s would more than likely hold off a downgrade this time.
“Given that the agency maintained a negative outlook on the rating, we believe that further downgrades are more likely than not,” Delport said.
“However, given the recent improvements in economic activity and fiscal data, we believe that Moody’s will keep the ratings unchanged at this stage.”