• Conflict over water, coal

    SA's leaders have upped their support of the water-intensive coal industry, says Keith Schneider.

  • Cost of doing business

    The world can't afford the $4.7trn a year in environmental costs of business, says Mandi Smallhorne.

  • Voter paralysis

    With so much tilting voters against change, democratic reason is the loser, says Solly Moeng.

All data is delayed
See More

Unemployment threatens SA rating

Jun 09 2011 14:49
Johannesburg - South Africa’s high unemployment rate is a major threat to the country’s investment grade rating, said Kristin Lindow, Moody’s senior vice-president and regional credit officer for Europe and Africa, on Thursday.

Lindow was speaking at a Moody’s conference in Johannesburg.

A quarter of South Africa’s 17 million strong labour force is unemployed, leaving many stuck in poverty and raising the risk of instability.

Lindow said in an interview that the rating outlook for South Africa remains stable, with little in its present policy stance to apply downward pressure, but unemployment is a major constraint.
Planned secrecy laws that would make exposing corruption or dodgy government deals punishable with prison could also undermine Moody’s assessment of South Africa, said Lindow.
Moody’s raised South Africa’s foreign currency rating to A3 in 2009 and lowered the domestic currency rating to the same level, saying the outlook remained stable.
“Right now South Africa’s rating is at top of its range... so we don’t expect any further push up nor do we see pressure downwards for the moment,” Lindow told Reuters at the sidelines of a conference.
While South Africa, saddled with an economy struggling to grow after a recession in 2009, has seen its budget deficit swell back to around 5% after small surpluses, its finances remained healthy and economic policy sound.
“There’s room for that (budget deficit) to occur, although there’s a question mark as to what the plans are in the longer term and how long will this go on, and that’s something I think needs to be addressed.
Standard and Poor’s upgraded South Africa’s outlook to stable from negative in January, but warned increasing public debt levels could reduce budget flexibility.
Fitch issued a similar assessment the same month, saying South Africa’s recovery in 2010 after its first recession in nearly two decades had outpaced expectations.

But on Thursday Lindow said the high unemployment rate - especially after the economic contraction slashed about a million jobs - posed a threat.

“Unemployment and other socioeconomic factors are clearly the major constraint for South Africa’s rating going forward,” Lindow said. “It’s a constraint because it’s definitely a political issue.

"There are concerns that the economy is not generating enough jobs to absorb new entrants into the labour force, not to mention that very large pool of the unemployed.”

Another worry was a proposed new law that, if passed, would restrict access to information from official regulators and state-owned enterprises, a move critics say could deprive investors of important commercial information.

“To the extent that this leads to a reduced level of public transparency, that could have an impact on our assessment of institutional strength in South Africa,” Lindow said.
“The question is whether or not we see that as a signal of future trends.”
moody's  |  south africa  |  unemployment


Read Fin24’s Comments Policy

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Company Snapshot

We're talking about:


Debt is one of the biggest financial issues facing South Africans today. Find out how you can avoid and manage your debt with Fin24 and Debt Rescue.

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...

Voting Booth

The upcoming petrol price hike is:

Previous results · Suggest a vote