SA ‘resilient to shocks’, but credit profile likely to erode – Moody’s

Credit rating agency Moody’s Investors Service delivers a counter to the upbeat sentiment of Goldman Sachs.

In a counter to Goldman Sachs’ upbeat conference in Johannesburg on Wednesday, Moody’s Investors Service warned that it might downgrade the country’s debt if President Cyril Ramaphosa fails to deliver promised reforms. 

Moody’s is the last major ratings agency that has SA on investment grade.

It warned that the country’s debt was set to balloon well above levels forecast by the government and that a failure to boost growth, curtail spending and improve tax collection would ‘put downward pressure on the country’s rating’.

While SA’s credit profile was ‘resilient to shocks’, which supported its investment-grade rating, the country’s credit profile was likely to continue to erode. South Africa faced weak long-term growth despite its favourable government debt structure, Moody’s said.

Moody’s is the only international credit rating agency that has not downgraded SA to junk, keeping SA at Baa3 – the last rung of investment grade.

Moody’s also gave a gloomy picture of the country’s GDP growth rate, which was expected to remain one of the lowest among Baa3-rated sovereigns. It said government’s debt burden was expected to rise to 65% of GDP by 2023, and more than 70% when including guarantees to debt-laden power utility Eskom.

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The observations about the absence of effective policy change, the continued erosion of the sovereign’s credit profile, with fiscal strength weakening and growth remaining low, were contained in a report Moody’s released on Wednesday night. 

The agency’s vice president, senior credit officer Lucie Villa and co-author of the report, said: ‘Fading prospects of policies that will sustain fiscal and economic strength, alongside any signs of diminishing resilience to shocks, would put downward pressure on the country’s rating.’

The agency did not say when it would be reassessing South Africa’s sovereign credit rating. Analysts have predicted this may happen after President Ramaphosa announces his Cabinet.

First published on Daily Friend