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Count down: SA waits with bated breath for Moody's ratings call

Jun 09 2017 06:00
Adiel Ismail

Cape Town - The much awaited announcement on South Africa's sovereign credit ratings from Moody's appears imminent, according to industry analysts.

Last week, rating agencies Fitch and Standard and Poor's (S&P), which stripped the country of its investment grade status, affirmed these ratings at BB+ with a stable and negative outlook respectively.

Moody's is the final assessment by a major rating agency and it is expected to announce its decision after the market closes on Friday.

The rating agency had given South Africa notice in April that it was on ratings review after President Jacob Zuma's midnight Cabinet reshuffle on March 31 which saw the removal of former minister Pravin Gordhan and his deputy Mcebsi Jonas from National Treasury.

READ: Treasury: Govt working hard to reclaim investment grade ratings

"The market anticipates that the US based rating agency will downgrade South Africa by one notch to Baa3, one notch above sub-investment grade," Paul Chakaduka, senior trader at GT247, told Fin24. 

"It already appears as if the market has baked in a downgrade to Baa3. The rating agency's outlook will be imperative for the South African markets. Gross domestic product (GDP) data released this week will have a key bearing on their growth outlook and prospects for South Africa."

The country slipped into a technical recession for the second time in eight years as GDP contracted 0.7% for the first quarter of 2017, Statistics South Africa (Stats SA) revealed on Tuesday.

This followed bleak unemployment figures, estimating that 9.3 million people in South Africa want to work, but can't find a job. Stats SA said that unemployment in its broad definition increased in the first quarter of 2017 to 36.4% from 35.6% in last quarter of 2016.

"South Africa is being overwhelmed with bad economic news of late - stark evidence of corruption, a rising rate of unemployment, low levels of investment and now a technical recession," Dr Kenneth Creamer, economist from Wits University, told Fin24.

READ: Moody’s may downgrade SA in coming weeks - economist

He cautioned that in addition to causing personal hardships for many people, the recession will make it more difficult for the government to stay within its fiscal framework.

"This risk will be a red light for Moody's and other rating agencies. Unless South Africans can come together and develop sufficient consensus around a viable programme capable of stimulating economic growth and driving transformation, there will be an increasing likelihood of further rating downgrades, either now or in the not too distant future."

TreasuryOne said in a note to clients that National Treasury confirmed on Thursday that Moody's was due to give its rating decision on Friday. The rand reacted negatively and traded at R12.91 to the US dollar by 17:10 on Thursday.

However, a Moody’s spokesperson told Fin24 that is doesn’t comment on potential rating actions. "Should Moody’s announce a rating action, we will do so in accordance with regulatory obligations.”

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