{"id":116042,"date":"2016-03-09T09:32:08","date_gmt":"2016-03-09T07:32:08","guid":{"rendered":"http:\/\/businesstech.co.za\/news\/?p=116042"},"modified":"2016-03-10T08:24:20","modified_gmt":"2016-03-10T06:24:20","slug":"south-africa-could-be-junk-by-the-end-of-march","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/business\/116042\/south-africa-could-be-junk-by-the-end-of-march\/","title":{"rendered":"South Africa a step closer to junk in March"},"content":{"rendered":"

[Update:]<\/strong> The Fin24 article below incorrectly states that a Moody’s downgrade would put South Africa at junk status – however, a move from Baa2 to a Baa3 rating is still one notch above junk.<\/p>\n

[Original article]<\/strong> While Finance Minister Pravin Gordhan is in the United Kingdom trying to woo international investors and prevent a sovereign ratings downgrade, Moody’s Investors Service has placed South Africa\u2019s Baa2 bond and issuer ratings on review for downgrade.<\/p>\n

\u201cThe decision to place the ratings on review was prompted by the continuing rise in risks to the country’s medium-term economic prospects and to its fiscal strength, notwithstanding the tighter fiscal stance undertaken in the 2016\/17 budget,\u201d Moody\u2019s said in a statement.<\/p>\n

If Moody\u2019s does indeed downgrade South Africa, it will become a junk country, which has a considerable impact on investment. Professional investors, such as hedge fund, pension fund and asset managers, have a policy that prevents them from investing in countries carrying a junk status.<\/p>\n

The ratings downgrade watch will allow Moody’s to assess to what extent South African government policies can stabilise the economy and restore fiscal strength in the face of heightened domestic and international market volatility.<\/p>\n

\u201cThe first driver for the review is to allow Moody’s to assess to the likelihood that the decline in South Africa’s economic strength will be reversed over the medium term,\u201d the rating agency said.<\/p>\n

Moody’s cited South Africa’s weak economic performance as a risk factor when assigning a negative outlook to the rating in December 2015.<\/p>\n

\u201cWe noted then that the economy was vulnerable to further adverse global, regional, domestic and financial market dynamics, with concomitant negative implications for government revenues, the fiscal balance and the government’s debt burden. Last year’s growth dropped to 1.3%, the slowest pace since the 2009 global financial crisis.\u201d<\/p>\n

Since then, growth prospects have worsened. Moody’s expects growth to deteriorate further to 0.5% in 2016, as a consequence of the severe drought and low commodity prices as well as the volatility in global and domestic financial markets since December.<\/p>\n

\u201cThis resulted in a further steep depreciation of the exchange rate. The drought has necessitated imports of key grain crops and pushed up food prices and overall inflation rates, leading to interest rate rises which have further undermined growth. This has also led the government to reallocate spending from other areas to provide drought relief.\u201d<\/p>\n

The second driver of the review is to ascertain if South Africa can reverse the \u201cerosion\u201d of its balance sheet. \u201cOver the last several years, South Africa has experienced a series of external shocks and adverse domestic developments (including lower than forecast growth, but also large public sector wage hikes) that have progressively weakened the government’s balance sheet.<\/p>\n

\u201cThe worsening debt dynamic was another factor Moody\u2019s assigned a negative outlook to South Africa in December 2015.<\/p>\n

\u201cAs with growth, the debt position has continued to deteriorate, even if only slightly.\u201d<\/p>\n

Meanwhile, Gordhan has responded, saying a Moodys delegation will meet with South African stakeholders between March 16 and 18 before making a decision on a possible downgrade.<\/p>\n

Fin24<\/a><\/p>\n

More on credit rating<\/h3>\n

What junk status means for South Africa<\/a><\/strong><\/p>\n

Moody\u2019s worried about growth<\/a><\/strong><\/p>\n

Junk status still likely for South Africa: ratings agency<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Moody’s Investors Service has placed South Africa\u2019s Baa2 bond and issuer ratings on review for downgrade.<\/p>\n","protected":false},"author":35,"featured_media":24779,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9872,11121],"tags":[26,1512],"class_list":["post-116042","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-finance","tag-headline","tag-moodys"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/116042","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/35"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=116042"}],"version-history":[{"count":3,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/116042\/revisions"}],"predecessor-version":[{"id":116140,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/116042\/revisions\/116140"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/24779"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=116042"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=116042"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=116042"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}