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Moody's: 'Low likelihood' of SA downgrade to junk

Sep 10 2019 11:44
Sibongile Khumalo

Ratings agency Moody’s sees a "low likelihood" of a downgrade in South Africa's credit rating, and expects that government debt will stabilise.

The agency's lead analyst for South Africa, Lucie Villa, told a journalist during a press conference at an investment conference in Johannesburg on Tuesday that the country's "stable outlook provided a low likelihood" that its credit rating would change. 

South Africa currently has a Baa3 rating, the last step before “junk”, with a stable outlook. 

Moody's is the only major credit rating agency that still reckons South African bonds are "investment grade". The two other big ratings agencies, Fitch Ratings and S&P Global, lowered South Africa's credit rating to "junk" in April 2017 after Pravin Gordhan was fired as minister of finance. A “junk” rating means the agency believes there is a bigger chance that government won’t be able to pay back its creditors.

If SA lost its investment rate grade rating from Moody’s as well, it would cost the country its place in the most important group of government bonds. The Citigroup’s World Government Bond Index contains only bonds that are investment grade. Many overseas investment funds that are only allowed to invest in investment grade bonds would be forced to sell their South African government bonds. 

Growth cut

Moody's also revealed that it had revised down the country's growth forecast for 2019 from 1% in June to 0.7%, citing slow pace in policy implementation, and that investor confidence remained fragile.

Villa told journalists that the revision was done on August 22 together with forecasts for all G20 economies, which South Africa is part of.

"Based on the information we received from June onwards, growth was then revised down to 0.7%," she said. The economy is expected to pick up to 1.5% in 2020.

READ: Moody’s and the woman who didn’t press the red button

Bank of America previously estimated that up to R200 billion of South African bonds may be sold off in that scenario. This will lower the value of SA bonds, and make it much more expensive for government to borrow money to keep the country afloat.

The rating agency skipped issuing an much-anticipated assessment of South Africa's sovereign credit rating in March. The date for the next scheduled rating action is November 1, about two weeks after the expected date for the medium-term budget policy statement, or mini budget. 

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