Moody’s said its rating rests on the government’s ability to quickly develop a credible strategy to halt and ultimately reverse the rise in debt.
The country can collectively breathe a little easier this morning as the Moody’s verdict is in. Our credit rating outlook is revised from stable to negative, but not downgraded to sub-investment grade at this stage.
Finance Minister Tito Mboweni, who earlier in the week described by credit rating agencies as friends and tormentors, said he had hoped for a different outcome, but acknowledged the rating action by Moody’s with a heavy heart. “In short, this week’s [MTBPS] announcements do not yet represent a developed, credible fiscal strategy. The development of a credible fiscal strategy to contain the rise in debt, including in the 2020 budget process and statement, will be crucial to sustain the rating at its current level.”
“In the last two years, it has become increasingly apparent that those constraints are challenging the government’s ability to implement reforms that would durably lift growth, to an even greater extent than previously expected. Moody’s has revised down its medium-term growth projections to 1-1.5%, barely in line with population growth, from earlier expectations of a gradual pick-up towards 2.5-3%.
“The government has also introduced multiple initiatives in the labour market including the Youth Employment Service programme, but none on a scale likely to materially increase employment.
Moody’s says South Africa’s geographical location means the country is subject to frequent climate-related shocks such as droughts, which undermine the agricultural sector’s performance and have weighed on growth in recent years. “That said, the country’s economic diversification and sophisticated agricultural techniques mitigate the impact of environmental considerations on South Africa’s credit profile.
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