SA’s present credit rating ‘well placed’

SOUTH Africa’s credit rating is well placed at the lowest investment grade, but rising foreign ownership of the government’s local-currency bonds is a risk, a senior analyst at Moody’s ratings agency said.

Two of the three large international ratings agencies – S&P Global and Fitch – downgraded South Africa’s foreign-currency rating to speculative grade, or “junk” status, this year after the economy slowed and an abrupt cabinet reshuffle in March.

Moody’s downgraded South Africa to “Baa3”, one notch above junk, in June and has the continent’s most industrialised economy on a negative outlook.

The ratings downgrades have put pressure on South African asset prices and could increase its borrowing costs.

“We think currently South Africa is well placed at Baa3 with a negative outlook. We had a rating action fairly recently in June,” Zuzana Brixiova, a Moody’s vice-president, said at a conference in London.

However, she said that since the June downgrade she had observed a larger-than-expected shortfall in South African government revenues and an increase in foreign financing of government borrowing in rands to around 40%.

“To some extent the risk of a ‘sudden stop’ has increased,” she said, referring to the risk that an abrupt change in investor sentiment could result in a sharp reduction in capital flows into South Africa.

Among concerns, Brixiova cited weak growth and pressure on institutions.

She said that whoever the ANC chooses as its next leader in December, Moody’s would “wait and follow what this really means for the policy direction”.