Moody’s may change outlook

BIG MOMENT: MUCH HINGES ON MINI BUDGET

A negative outlook means the next move on the credit rating may be a downgrade.

South Africa’s tenuous hold on the stable outlook of its sole investment-grade credit rating may slip, with Finance Minister Tito Mboweni expected this week to show a marked deterioration in the state of the nation’s finances.

Of the 17 economists in a Bloomberg survey, nine forecast that Moody’s Investors Service will change its outlook on the nation’s credit rating to negative before the end of the year.

Mboweni will present the medium-term budget policy statement in Cape Town tomorrow, two days before Moody’s is due to reassess South Africa’s rating.

The company may end up only issuing a research report without a ratings action, or nothing at all.

It didn’t give assessments on the last two scheduled dates.

“Moody’s main concern is the direction of structural reform,” said Danelee Masia, an economist at Deutsche Bank.

“If delivered, this will help to raise potential growth and stabilise if not reduce the fiscal gap.”

Moody’s will view the weak fiscal metrics as credit negative and the recent resumption in power outages will further weigh on the economic outlook and “raise the prospect of the state having to cough up even more bailout funds,” said William Attwell, the London-based head of sub-Saharan Africa research at DuckerFrontier, an advisor to multinational firms.

A negative outlook means the next move on the credit rating may be a downgrade, which would leave South Africa without an investment-grade ranking for the first time in 25 years.

However, it could take as many as 18 months for a ratings move to happen following an outlook change.

None of the economists surveyed by Bloomberg see Moody’s taking the country to junk this year and only four of 15 predicted the company will cut South Africa to sub-investment grade in 2020. – Bloomberg