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Moody's on way to SA for thorough review

Mar 09 2016 10:30
Liesl Peyper and Fadia Salie

Cape Town - Moody's Investors Service has announced it will come to South Africa in the near future for a thorough review, after placing the country on intense watch for now.

During this visit Moody’s will either affirm or downgrade its current rating for South Africa following its annual review visit from March 16 to 18, National Treasury confirmed on Wednesday.

Late on Tuesday Moody’s, which currently rates South Africa two notches above sub-investment grade for foreign currency debt, placed the Baa2 bond and issuer ratings of the RSA government on review for downgrade.

NKC African Economics said the move comes as no surprise. "Moody’s had already put South Africa’s rating on negative outlook in December and given the fact that it rates South Africa one notch higher than fellow rating agencies, such as Fitch and Standard & Poor’s (S&P), this move comes as no surprise."

Rand at lowest level for week

The rand traded at its lowest level for the week at R15.47 to the dollar following the announcement. "Although this has been talked about for months, the news caused it to edge up further in the Far East, although there is no panic in the movement as yet," said Umkhulu Consulting's Adam Phillips.

The focus has now turned to the release of mining and manufacturing production numbers on Thursday which are expected confirm the state of the economy, he said.

During its visit Moody's will assess the views of various stakeholders in government, civil society, labour and in the private sector in a number of areas, including whether South Africa can arrest and reverse the decline in its economic strength in the medium term.

Treasury said the agency will also look at whether South Africa can make sufficient progress to stabilise and restore fiscal strength, and whether policy is likely to lead to a reversal in the continuing erosion of the government’s balance sheet.

In its meetings with Moody's, Treasury said it will highlight:
 -  Its collaborative actions aimed at accelerating inclusive growth;
 - Measures adopted in the 2016 budget to accelerate fiscal consolidation and to give effect to the National Development Plan;
 - Steps taken to reinforce stable industrial relations;
 - Accelerated implementation of the R870bn infrastructure investment programme;
 - Progress made in resolving energy constraints, including through renewables independent power producers and the extension of the same approach to coal and gas; and
 - Initiatives it is taking to implement the recommendations of the Presidential Review Commission on state-owned entities aimed at strengthening their governance, financial oversight and enhancing their contribution towards the attainment of the country's developmental goals.

"As a resilient nation we are working together as civil society, labour, business and government to demonstrate our commitment to translate our plans into concrete actions," Treasury added.

David Maynier, Democratic Alliance shadow minister of finance, said: "The decision by Moody's to place us on a review for a downgrade is a major setback for South Africa. If South Africa is eventually downgraded to 'junk' status it will raise the cost of borrowing, result in capital outflows, lead to further currency weakness, and increase the cost of living for ordinary people in South Africa."

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national treasury  |  downgrades  |  sa economy

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