Moody’s infighting alert

Political risk in SA highlighted

MOODY’S Investors Service has warned that political infighting‚ low growth and unemployment pose the greatest risks to the South African economy in a credit note released just after midnight on Saturday.

Moody’s is the only one of the three main international rating agencies to rate SA two notches above junk‚ and has historically remained optimistic about SA.

Instead of delivering a sovereign credit rating decision‚ Moody’s instead released research papers on SA‚ in which it highlighted the upsides and risks to the country’s economy.

Fitch on Friday kept SA’s rating at BBB-‚ one notch above sub-investment‚ but dropped the outlook from stable to negative.

It also said political risks to standards of governance and policy-making had increased‚ and would remain high at least until the electoral conference of the ANC in December 2017‚ negatively affecting macroeconomic performance.

Moody’s has SA on Baa2 with a negative outlook.

It said in its note the South African political scene continued to be “noisy” as the country’s democracy matured‚ but that key institutions remained resilient. “For example‚ in late October‚ the national prosecutor dropped its charges against the Finance Minister Pravin Gordhan. Days later‚ the public protector’s office released an investigative report on state capture‚ pointing to the strength of the protector office,” Moody’s said.

“The negative outlook on SA’s Baa2 government bond rating reflects risks related to the implementation of structural reforms aimed at restoring confidence and encouraging investment‚ upon which Moody’s bases its expectations for a gradual growth recovery and debt stabilisation in coming years.

“The negative outlook also recognises the downside risks associated with political uncertainty and low business confidence as well as the challenging external environment ....

“SA’s rating would likely be downgraded in the absence of fundamental structural reforms supporting higher and sustainable medium-term growth. Continued accumulation of public debt and contingent liabilities in terms of GDP would also put downward pressure on ratings.

“Finally‚ political infighting impeding the government’s ability to implement key structural reforms and contributing to protracted low business confidence would also be negative.”

Emerging market economist at Nomura Peter Attard Montalto said he thought Moody’s note was a way of doing nothing. “They did not want to affirm. This‚ I think‚ was an active decision to send a signal.”

S& P Global is poised to issue its review on December 2. It ranks SA BBB- with a negative outlook.

Growth of 0.4% is forecast for 2016‚ picking up to 1.2% in 2017 and 1.6% in 2018.

The rating agencies have cited instability and inflexibility in the labour market‚ policy uncertainty and a toxic political environment as among their concerns.

Gordhan has been instrumental in efforts to convince agencies SA is doing what needs to be done to put it on a higher growth path, and to address concern about corruption at the highest levels of government.

The fraud charges he faced, and former public protector Thuli Madonsela’s State of Capture report‚ have added to concern about the direction SA is headed. But SA’s institutions – especially its courts – and civil society have been lauded as a positive factor. — BusinessLive