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Treasury uncertainty risks confidence - Moody’s

Sep 15 2016 19:15
Arabile Gumede

Johannesburg - Uncertainty about the leadership at National Treasury and political infighting are eating into investor confidence and present the greatest risks to the nation’s credit rating, Moody’s Investors Service said.

“Rising political infighting and the uncertainty about continuity of leadership at the National Treasury have been creating policy uncertainty,” the company said in an e-mailed report Thursday. “We view the greatest risk to South Africa’s creditworthiness, moderate but rising, as stemming from domestic political risks.”

While South Africa was spared credit-rating downgrades by Moody, S&P Global Ratings and Fitch Ratings earlier this year, all three companies have voiced concern about politics and sluggish economic growth. News last month that Finance Minister Pravin Gordhan, who led efforts earlier in the year boost the confidence of investors and rating companies in the economy, is being investigated by the police hit the rand and bonds.

Moody’s affirmed the rating of the continent’s most-industrialized economy at Baa2, two levels above junk, in May while keeping its outlook negative. The outlook “recognises the downside risks associated with political in-fighting, fragility of growth recovery and pressures on the fiscal front,” the company said Thursday.

South Africa’s economy expanded by an annualized 3.3% in the second quarter, avoiding a second recession in seven years. The credit rating could be cut if growth doesn’t recover, Moody’s said. The economy will probably expand 0.2% this year and 1.1% in 2017, it said.

While a rating upgrade is unlikely, Moody’s said it could change the outlook from negative to stable if the government delivers on faster growth and stabilizes, or eventually reduces, government debt. Gordhan will present the mid-term budget to lawmakers in Cape Town on October 26. More labor-market flexibility and reforms at state-owned companies would also be credit positive, Moody’s said.

Moody’s placed five South African state-owned companies on review for a downgrade on Wednesday citing concerns about funding sources, governance and the political environment.

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