Ratings firm, Moody, says its current credit rating one notch above speculative grade South Africa depended on how quickly President Cyril Ramaphosa’s government can implement promised reforms to maintain the level.
Moody’s lead analyst for South Africa, Lucie Villa, said at a credit conference on Tuesday in Johannesburg that the firm’s concern was how the country would overcome the fiscal risks and political constraints to economic growth.
“A lot of the deterioration we have witnessed is embedded in the ratings level and the past downgrades. The question of course is going forward. Our expectation is stabilisation in debt,” Villa said.
The agency is the last of the top three ratings firms to still rank Pretoria debt at investment grade, Baa3, with a stable outlook.
The firm has delayed delivering a widely expected downgrade that analysts say would trigger a selloff of billions of rands of bonds, pushing up already soaring government borrowing costs.
Moody’s further trimmed its economic growth forecast for South Africa to 0.7% in 2019 from a June forecast of 1.0%, but kept its 2020 forecast at 1.5%.
Last week, South Africa recorded better than expected growth of 3.1% in the second quarter following a deep first quarter contraction, easing some of the credit downgrade fears, although lingering fears about the fate of cash-strapped state power firm, Eskom, have kept a downgrade a possibility.
Villa said the agency was keen to see the final government plan on the promised break-up of Eskom into three separate entities and that most of the risk to the sovereign rating depended on the implementation of reforms across the economy.
“At the political level, as things stand in terms of policy orientation, we still see a very reform-oriented executive which is why we still believe there is still some prospects of a pick-up in growth,” Villa said.
“From a credit perspective, the main downside risks are actually to the longer-term perspective, so more from about 2020 to 2021 and beyond. And here we maintain our expectation of growth of 1.5%”.
Moody’s is expected to deliver its next review of South Africa’s rating in November after National Treasury has tabled its medium-term budget statement.