Tag: Moody’s

Moody’s finally dropped the sword on South Africa on Friday evening, following in the steps of fellow ratings agencies S&P and Fitch in downgrading the country’s sovereign credit rating to sub-investment grade or 'junk status'. And the COVID-19 crisis and current lockdown mean that even before factoring in the impact of Moody’s decision, the economic outlook for SA in 2020 is harrowing.

Moody’s cut both the local and foreign currency-denominated debt from Baa3 to Ba1 and retained the negative outlook. Their statement highlighted South Africa’s deteriorating fiscal situation amidst very weak economic growth, saying: 'The key driver behind the rating downgrade to BA1 is the continuing deterioration in fiscal strength and structurally very weak growth.'

Sparking an immediate celebration in the rand and bond markets, the 2020 Budget Speech ticked all the right boxes for markets, depicting a government that is reform-minded and ready to show its muscles.

Budget statements have in recent years perennially made downward revisions in economic growth projections. Disappointing growth outcomes compared to official forecasts is partly attributed to the inability to implement planned structural reforms that would have delivered improved growth outcomes.

Minister of Finance Tito Mboweni will deliver his 2020 budget speech today. South Africa enters a new decade with a growth forecast of only 0.7% (according to ratings agency Moody’s).

As most South Africans eagerly awaited some reprieve from a year of constant and negative bombardment, be this over matters such as a massively contracted economy, rising unemployment, state capture, rising corruption and the threat of expropriation of property without compensation, many had hoped to return from their annual vacation rested, and hopeful to hear some positive news. This did not happen.

The South African Reserve Bank has decided to keep interest rates unchanged. Interest rates stability coupled with a recovery in the economy during the second quarter provides consumers and SMEs a window of opportunity to review finances. More importantly, Moody’s wait-and-see approach with respect to our country’s rating is another incentive for South Africa to stimulate economic recovery.

The probability of a credit rating downgrade from Moody’s does not necessarily equal ‘good’ news for SA’s economic prospects. It is merely the calm before the storm. It would be good news if SA had embarked on one or two of the required reforms – however, this has yet to happen. This temporary reprieve from Moody’s gives SA time to implement some of the changes required to right a seriously listing ship.

Nedbank says structural reforms aimed at stemming the current economic and fiscal deterioration in SA need to be implemented with greater urgency. Its call came as it reported muted growth in interim earnings and trimmed its full-year guidance due to weaker than expected economic growth this year.