Rating agency, Moody’s this week flagged South Africa’s downgrade as important because of the country’s weakening institutions, declining growth and increasing debt levels.
Last week, a group of concerned economists warned that South Africa would likely be downgraded in 2017, by all three rating agencies.
A panel of economists, who were speaking at a Small Medium Enterprises Indaba, said rating agencies were very concerned about the country’s higher-than-expected deficit and political uncertainty. An unscheduled visit by Moody’s this week has increased fears that a downgrade is inevitable.
Moody’s is the only agency that has the country above junk status.
In its recent report, Moody’s placed a negative outlook for Brazil, Turkey and South Africa. The agency also released a statement in October following the medium-term budget, indicating a credit negative change in policy direction.
Moody’s review is set for the end of October and economists say the agency will downgrade the country into junk status.
Economist Thabi Leoka says Moody’s chances of downgrading the country are much higher than those of Fitch and Standard & Poor’s.
This is, especially, as the African National Congress heads towards its elective conference in December, where the battle for organisation’s leadership has been brutal.
“Moody’s still has us as an investment grade country just one notch above junk. If they downgrade us that is when we are removed from the indices and this means there will be a lot of outflows out of South African market. Already about R11.5 billion has been withdrawn. So, that shows you that people are not investing in South Africa and their sentiment towards South Africa is changing.”
Moody’s also says the outlook for progress in the country is patchy, riddled with political uncertainty, social tensions and a lack of commitment to reforms.
“We definitely believe that South Africa will be downgraded and it has been FNB’s view for quite some time given that the economy is under performing and the disappointing MTBPS (Medium Term Budget Policy Statement) also confirmed that a downgrade is pending. We definitely think that the Rand is going to react to the downgrades and we will see that currency depreciate somewhat and that will have negative implications for the inflation,” says FNB Economist Mamello Mantikinca.
Meanwhile, the International Monetary Fund has warned South Africa to implement immediate reforms to restore confidence in the economy.
