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Cape Town - The credit outlook of the South African Government is stable, according to a credit opinion report issued by Moody's on Wednesday.
The report is not a rating action, but merely summarises the outlook for its credit standing.
"The rating outlook is stable, which reflects policymakers' commitment to containing increases in Government deficits and debt," said Moody's.
“SA's rating could be downgraded, however, if the official commitment to fiscal consolidation and debt stabilisation falters, or if the investment climate deteriorates further, said Moody's.”
The credit challenges for SA include regaining control over public finances in advance of what it calls "inevitable interest rate increases from current lows" and a weakening labour productivity and strike-related business losses exacerbated by declining terms of trade.
Other credit challenges are weak national savings and infrastructure constraints, high unemployment, wide income disparities and HIV/Aids prevalence.
The report sees South Africa's credit strengths as including good external liquidity, complementary monetary, fiscal and exchange rate policies, a rich natural resource base, a deep and liquid domestic financial market and well-capitalised banking system and a dominant role in the African economy.
Bond rating
The report has an outlook of Baa2 for SA's Government bond rating - therefore unchanged. The country's economic strength is assessed at “high (-)” Institutional strength is also assessed at "high (-)" and the fiscal strength assessment is "high". Susceptibility to event risk is assessed at "moderate (-)".
Although the SA Government's debt metrics have deteriorated rapidly since 2009 and growth remains below potential, Moody's now expects the debt/GDP ratio to stabilise as early as this fiscal year.
However, Moody's is of the opinion that the Government's efforts to distance itself from the finances of State Owned Enterprises like Eskom could still be more costly than planned.
"In South Africa's case, the greatest risks - while still relatively moderate - are posed by the domestic political situation, specifically from wide income disparities and high levels of unemployment," said Moody's.
Additional vulnerabilities come from the large current account deficit and heavy reliance on external portfolio financing.
"On the other hand, the Government's access to the debt capital markets - both domestic and international - remains stable, with more than 90% of the Government's debt denominated in rand and raised in the local capital market," it said.
