Moody’s gives South Africa a break

RATING NOT UPDATED: NEXT STEP COULD BE ANOTHER DOWNGRADE It may change at any time if there’s material change in credit condition or other event.

Next review is set for November this year now.

Credit agency Moody’s has skipped a scheduled review of South Africa’s sovereign rating. The announcement was expected late on Friday night. Instead, the agency published a notice to say the ratings for SA – and other countries like Denmark and

Italy – were not updated. The next ratings review is scheduled for 19 November this year.

However, Moody’s says it may change ratings on any other date if there is “a material change in credit condition or other event”.

Last year, Moody’s stripped South Africa of its investment grade rating, downgrading government bonds to “junk”.

A “junk” rating means there’s a bigger chance the government won’t be able to pay back its debts.

Moody’s currently rates SA at Ba2 (two rungs below investment grade), with a negative outlook – which means the next step could be another downgrade.

In February, the agency raised concerns over government spending on civil servant wages and interest payments on its ballooning debt. Economists do not expect a further downgrade soon, however.

While still strained, SA’s government finances look in better shape than expected.

The budget deficit (R552 billion) for the past year was 11.2% of GDP, Bloomberg reported this week.

This was far lower than government’s own projections, and thanks to strong tax income, as well as subdued state spending.

Meanwhile, the rand was trading at its best level in 16 months, and was last at R14.08/$.

The currency strength is due in part to booming commodity prices, with raw materials accounting for a third of SA’s exports.

As the world economy recovers, China powers ahead and the US readies massive infrastructure investments, these prices have rallied.

SA miners have benefitted from stronger platinum and palladium prices, while on Friday gold spiked to $1 840 an ounce.