There’s relief among South Africans as rating agency Moody’s gives the country another stay of execution.
It has kept South Africa’s credit rating at Baa3, hovering one notch above junk status.
The rating agency has upgraded the outlook to stable, signalling cautious optimism about the government’s turnaround plans.
A change in the country’s leadership, a cabinet reshuffle which includes the return of Nhlanhla Nene as Finance Minister and the removal of ministers linked to the Gupta family and state capture have helped SA escape a credit rating downgrade from Moody’s.
It’s the first verdict on the country’s creditworthiness since President Cyril Ramaphosa assumed office.
Chief economist at Econometrix, Azar Jammine explains how South Africa can avoid a rating downgrade.
“There are basically three pre-requisites. The first is to ensure that we don’t over-spend. So that we don’t have to borrow too much more so that the public debt to GDP ratio which is the litmus test of potential solvency of the debt.”
“Secondly, we have to watch state-owned enterprises to ensure that they are not so badly managed that they have to get government to bail them out using its own debt. Thirdly, we have to ensure that our economy grows faster, so that tax revenues improve,” adds Jammine.
Moody’s will make its next rating of South Africa on October 12.
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