Will Moody’s skip its ratings decision on South Africa because of the coronavirus?

As South Africa continues to deal with the coronavirus pandemic it also faces the threat of a credit downgrade from ratings agency Moody’s, says Stelenbosch University’s Bureau of Economic Research (BER).

The group notes that Moody’s has a calendar date for South Africa’s sovereign rating on Friday (27 March), but are not obliged to provide a credit rating verdict.

“Given current circumstances, they may skip the decision. Some are making a moral argument about this, i.e. ‘how could they’ downgrade South Africa in these conditions,” the BER said.

“However, the cold hard facts of Covid-19 are that public debt stabilisation over the medium term in SA will be nigh impossible.

“We still think the decision is 50/50. Even if they downgrade, it may be a non-event as Covid-19 overshadows all else. Therefore, the additional domestic market sell-off on top of the carnage already experienced will hopefully be limited.”


The BER said that details of a broad government support package could emerge on Monday (23 March) when president Ramaphosa is scheduled to address the nation.

Besides the SARB’s monetary policy actions, the BER noted that a number of additional support measures were announced through the week.

“More broadly, given the unprecedented shock hitting the world and South Africa, the government may need to throw away the playbook and follow the lead of other countries and announce a bold fiscal package to support households and the business sector through the crisis,” the BER said.

“South Africa’s public debt is likely to explode higher in any event because of the dramatically reduced GDP outlook. The authorities should do whatever is possible to contain the economic damage.”

The BER said it also expects that the Reserve Bank will be forced into a further policy interest rate reduction before the next scheduled meeting in May.

“Despite the large stimulus measures, forecasts for global real GDP continue to be slashed. While lots of uncertainty remains, it now seems reasonable to expect that global GDP (measured at purchasing power parity) will contract for the entire 2020.

“If realised, this will be an even worse outcome than in 2009 in the aftermath of the global financial crisis. South Africa’s real GDP declined by 1.5% during 2009.

“While we will run all the numbers in little over a week’s time, at this stage we would advise clients to prepare for an even steeper decline than in 2009, i.e. -2% with a high probability of it being even worse.”

Read: Rand reaches fresh lows as coronavirus continues rapid spread

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Will Moody’s skip its ratings decision on South Africa because of the coronavirus?