Ratings agency Moody’s is unlikely to downgrade South Africa from its investment-grade status in 2019, provided the country remains on its current trajectory.
Speaking to eNCA, Moody’s senior analyst Lucie Villa said that the country currently has a stable economic outlook, strong institutions and reasonably good foreign currency reserves.
However, she cautioned that there are still issues surrounding power utility Eskom which is facing R440 billion in debt.
While the government has proposed splitting it into three units and a policy paper by the National Treasury proposes selling coal-fired power plants, no strategy to stabilise its finances has been published yet.
“For us, there will be only one plan and that will be the one that both the government and the company agreed to,” Villa said.
“Knowing the complexity of the issue, we know first that it will be an iterative process and that it takes time. So our view has been that is takes more than a few months to sort out certain issues.”
Moody’s is currently the only major ratings agency that has South Africa in investment grade, one notch above junk, with a stable outlook.
The country has been rated below investment grade since 2017 by ratings agencies Standard & Poor and Fitch.
Should the agency also downgrade South Africa to junk status, the country would no longer be eligible for inclusion in debt gauges such as Citigroup Inc’s World Government Bond Index (WGBI).
This would trigger a major outflow of money from the country estimated to be in the region of R100 billion.