Moody’s ratings agency is not expected to downgrade South Africa’s sovereign credit rating despite the economy being in recession.
Economists believe the agency may choose to wait until the Medium Term Budget Policy Statement which is expected to be delivered in two weeks’ time.
Newly appointed Finance Minister Tito Mboweni will face the task of affirming government’s commitment to fiscal consolidation and strategic investment in the face of low economic growth.
Moody’s has South Africa’s credit rating at investment grade level, with a stable outlook.
Ratings agencies have been concerned about low economic growth levels, contingent liability posed by State Owned Enterprises and commitment to fiscal consolidation.
Government has moved to introduce the stimulus package expected to move funds to sectors that will inspire economic activity and job creation.
On the policy certainty front a new mining charter has been introduced as well as a new visa regimen expected to boost tourism.
PWC Economist Maura Feddersen says a Moody’s downgrade of South Africa’s debt to sub-investment grade would spell disaster for the country.
“If it happens, South Africa would be removed from the Citi World Government Bond Index, prompting asset managers and pension funds to sell domestic bonds. This would sharply increase the cost of debt and put more pressure on the local currency. It will be expensive for the country to borrow further.And the economy in recession presents a risk for a downgrade,” says Feddersen.
Feddersen believes National Treasury will likely revise its 2018 growth expectations downwards.
