There’s a good chance South Africa will avoid a downgrade: Moody’s

Ratings agency Moody’s says there is only a 30% chance that the group will downgrade South Africa’s sovereign debt rating in November 2016 – but the risk is still very real.

Speaking to Bloomberg on South Africa’s credit rating, Moody’s VP Zuzana Brixiova said that the chances of a cut at the end of the year was less than 50%, and closer to a third.

According to Bixiova, the group is keeping a close eye on the current political situation in the country, and will be looking for government to grow the economy and bring stability to the political landscape.

Chief among South Africa’s political problems is uncertainty around finance minister Pravin Gordhan, and whether his position as head of the country’s finances is secure. Possible prosecution hanging over his head has led to some economic turmoil – while the wider picture of divisions within the ruling party have put investors off.

Moody’s said that it is confident that Gordhan’s position is safe – and even if he were to be removed, it would only factor into the equation if his replacement made changes to the country’s current fiscal policy.

However, of all the global ratings agencies, Moody’s is the most optimistic, currently holding South Africa’s rating at two notches above junk status.

Therefore, a cut from Moody’s would only put it in line with the two other agencies – Fitch and S&P Global – who have the country at one notch above junk.

Economists have long expected that at least one of the three major agencies will cut South Africa to junk by the end of 2016, with S&P – and its current negative outlook – being the most likely to do it.

Moody’s will give its rating review at the end of November, while both Fitch and S&P will deliver their verdicts early December.

Earlier in the month, the country avoided falling into a technical recession after GDP data for the second quarter of 2016 showed growth of 3.3%, following a dismal first quarter, where the economy declined by 1.2%.

In July however, The International Monetary Fund cut South Africa’s growth outlook for 2016 to just 0.1%, while the SA Reserve Bank forecast 0% growth in 2016.

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