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Johannesburg - Managing the presidential transition without "meaningful policy disruptions" is a credit challenge for South Africa, says ratings experts Moody's in a credit opinion published late on Monday.
"The key unknown regarding Mr Zuma is whether he would support the prudent economic policies in place during the past dozen years, given his populist-tinged campaign rhetoric. This uncertainty has contributed to modest portfolio and equity outflows in recent months, exerting pressure on the currency and raising concerns about financing of the very large current
account deficit," note the analysts.
Meanwhile electricity rationing, ongoing monetary tightening and rising inflation have already cut into economic activity in recent quarters, they add.
Notably, a deterioration of the healthy public finances and/or a serious deterioration in the external credit metrics caused by spend thrift policies and any serious undermining of the rule of law and the sanctity of contracts are seen as downside risks to SA's credit ratings.
The ratings agency sees other credit challenges as the weak national savings, large infrastructure shortfalls and high external capital needs.
Further challenges include high unemployment and wide income disparities and HIV/Aids prevalence and its consequences.
The credit strengths of South Africa, meanwhile, are seen as healthy public finances, including low foreign debt and strengthening external liquidity and a stable, predictable economic policy framework with an increasingly diversified, open, and dynamic economy.
Moody's says South Africa needs higher domestic savings and investment rates to support rating upgrades, as would higher growth, restrained external debt accumulation, and the maintenance of sound economic policies before and after the presidential transition in 2009.
"Another important consideration would be how well the economy adjusts to the adverse global market environment, given the country's large external financing requirements."
The Moody's outlook on the foreign-currency country ceilings and the government's Baa1 foreign-currency debt rating is positive, based on the improving external liquidity position and the government's low susceptibility to event risk.
The government's A2 domestic-currency rating is stable, as public finance metrics are expected to stay in line with peers, concludes Moody's.
Credit opinions are not rating actions or confirmations of ratings, but items of research that are produced for every issuer.
Head of sovereign ratings for Moody's, Kristin Lindow, was in SA in late June.
- I-Net Bridge