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D-Day for SA sovereign credit rating

Mar 23 2018 05:45
Jan Cronje

Cape Town - By midnight on Friday South Africans should know whether Moody's has downgraded SA's sovereign credit rating to junk, or kept the country at above investment grade. 

Moody's was the only major ratings agency to not downgrade South Africa to sub-investment grade in 2017. It currently has the country at one notch above junk.

While its rival ratings agencies Fitch and S&P both downgraded SA to junk last year, Moody's maintained its sovereign rating for SA at Baa3, one rung above junk status.

In November 2017, at the time of its last ratings announcement for SA, Moody's said it would assess the composition of the country's 2018 budget and the implications of recent political developments when making its decision. 

Cautious optimism 

Top Treasury officials and business bodies are cautiously optimistic that Moody's will not join Fitch and S&P in downgrading SA to junk.

On Thursday Deputy Finance Minister Mondli Gungubele said at a meeting of public policy makers and business leaders in Johannesburg that Treasury had recently conducted "very frank and honest discussions" with ratings agencies. “As a result of that, I anxiously, and with all humility expect something better, but that is their decision to make,” he said. 

Business Leadership South Africa CEO Bonang Mohale told Fin24 by phone from New York earlier in the week that the mood of ratings agencies around recent developments in SA "seems to be positive".

Market analysts, meanwhile, have argued that the relative strength of the rand may indicate that investors are already pricing in the likelihood that SA's credit rating will not be further downgraded.

If Moody's does decide to downgrade the country, SA will automatically be removed from the Citi World Government Bond Index, forcing asset managers to sell SA bonds.

This would result in billions of rands leaving the country.

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