Moody’s says South Africa is still skating on thin ice. However, the rating agency says all that can change is if it improves the rising debt levels and the running of state owned enterprises.
It says the country faces a weak long term growth outlook and rising debt and that South Africa’s GDP growth will remain one of the lowest among Baa3- rated sovereigns
Moody’s says government debt burden is expected to rise to 65 % of GDP by 2023 and this will increase to over 70 % including government guarantees that have been granted to Eskom. The rating agency is urging government to turn the tide, but still warns it will take a few years before any meaningful progress is registered.
“Moody’s is quite pessimistic about South Africa’s growth prospects and that it will be difficult to lift up the economy over the next few years and that they may be forced to downgrade us if we don’t improve,” says Econometrix Chief Economist Azar Jammine.
Policy change is key to changing the sovereign credit profile or it will continue to be eroded, that’s another warning from the agency and that government will have to reduce the high cost of borrowing and be an investment friendly destination.
It says the new government must promise a fresh start that will deal effectively with obstacles hampering revenue increase.
“It’s make or break. If they do they would deserve support and if they don’t we will get into a debt trap,” says South African Institute of Race Relations Chief Economist Ian Cruickshanks.
So far Fitch Ratings and S &P Global rating agencies have downgraded South Africa into junk status. Moody’s has warned that its rating decision will be based on how government deals with the financial challenges facing state owned enterprises and government’s debt levels.