The Mercury

Credit rating in Moody’s spotlight

- Ethel Hazelhurst

AT A time when ratings agencies are getting tough on global borrowers, South Africa’s credit status is under scrutiny. Ratings agency Moody’s Investors Service will hold a sub-Saharan Africa credit risk conference in Johannesbu­rg on Thursday, which will cover topics such as sovereign debt and the debt of banks, corporates and the South African municipal sector.

Moody’s could use the occasion to make a change to South Africa’s outlook, currently stable with an A3 rating, which is four notches above subinvestm­ent grade. A country’s credit standing determines the interest rate it has to pay when it borrows funds – a bill which is met by the taxpayers.

The chance that Moody’s will improve its outlook is limited.

Econometri­x chief economist Azar Jammine said there was no reason for Moody’s to make a change. He said while the successful local elections was a positive factor, it was largely expected. And, though firstquart­er growth was a surprising­ly strong 4.8 percent, he doubted it could be sustained.

Nedbank group economist Dennis Dykes said: “With all the uncertaint­y both globally and locally, putting the country on a positive outlook would be a brave thing to do.”

He was referring to slow economic growth in advanced economies and recurring debt problems internatio­nally, both of which affect domestic growth and policy issues.

Moody’s has taken a tough line on the US. According to Bloomberg, it will put the US government’s Aaa credit rating under review for a downgrade unless there is progress on limiting debt by mid-July.

And Moody’s downgraded Greece further last week to Caa1 from B1, with a negative outlook, which means it could be downgraded further. It cited failure to meet debt reduction targets and “uncertain growth prospects” as reasons.

South Africa, in contrast, does not have excessive debt. But it does have problems that could affect its credit standing.

Among the many uncertaint­ies are questions around the government’s commitment to its present fiscal policies. In a report in March, Moody’s said the stable outlook was based on expectatio­ns that the sound policies of the past decade would continue. But it warned of an “increased risk that easier fiscal policy will become entrenched due to the greater influence of the labour unions and more activist public policy advocates in government”.

The March report followed the announceme­nt in February, by Finance Minister Pravin Gordhan, that the budget deficit would narrow at a slower pace than previously expected. The deficit was expected to be as high as 3.8 percent of gross domestic product in 2013/14 instead of 3.2 percent estimated previously.

Dykes said a positive rating was not out of the question as Moody’s had in the past made bold moves when other agencies had been more cautious.

Foreign investors are still giving the economy a thumbs up. Leon Myburgh, Citi’s subSaharan Africa strategist, said non-resident portfolio inflows in the first two days of June were worth R2.3 billion after net inflows of R13.3bn in May.

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