Despite the \u201cnoisy\u201d political scene, rating agency Moody\u2019s is more concerned about the continuation of policy reform when it makes its decision on South Africa’s credit rating.<\/p>\n
At a press briefing at Moody’s annual South African credit risk conference in Sandton on Tuesday, senior vice-president Kristin Lindow and vice-president and senior analyst Zuzana Brixiova spoke about what the rating agency will be looking at when it makes its decision on the country\u2019s sovereign rating.<\/p>\n
An update could possibly be announced on November 25, but it is also possible that no rating action will be taken, explained Lindow. Moody’s does not expect to upgrade the rating from its current Baa2 with a negative outlook in the near future.<\/p>\n
\u201cDespite the noisy political scene, South African institutions remain strong,\u201d said Brixiova. This includes the independent judiciary, the Reserve Bank, the auditor general and National Treasury. \u201cThe noise is not an issue; it is only an issue if it impedes structural reform and investor confidence,\u201d she said.<\/p>\n
The outcome from recent local elections indicates the strength of South Africa\u2019s maturing democracy, explained Lindow. The local elections reflected the changing demographics of the electorate such as increased urbanisation and a rising black middle class, said Brixiova. Rising opposition puts competitive pressure on the implementation of structural reform.<\/p>\n
Factors for and against a junk downgrade<\/strong><\/p>\n In Moody\u2019s credit opinion released last week, the rating agency explained that a downgrade would result if South Africa fails to ensure growth recovery, and if structural reforms are not in place to contribute towards sustainable growth and stabilise debt. \u201cWe would likely downgrade the rating in the absence of growth recovery,\u201d said Lindow.<\/p>\n Positive drivers to stabilise the rating depends on government\u2019s ability to deliver on its reform commitments and maintain fiscal consolidation and contingent liabilities, explained Lindow. Reviving business confidence and improving labour market flexibility and reforming state-owned enterprises (SOEs) will also be positive for the rating.<\/p>\n South Africa\u2019s other credit strengths include its deep and liquid financial markets, its low foreign currency debt, and close and rising ties with African markets.<\/p>\n Further credit challenges include the accumulation of public debt and government contingent liabilities, because of the financially weak SOEs. Brixiova said Moody’s is concerned about the continuation of fiscal consolidation. Leadership changes in Treasury cause concern about policy changes.<\/p>\n Regarding government\u2019s Presidential CEO Initiative which aims to restore investor confidence, Brixiova said the extent to which these stakeholders work together is important, and an indication of structural reforms being implemented.<\/p>\n There\u2019s a good chance South Africa will avoid a downgrade: Moody\u2019s<\/a><\/strong><\/p>\n South Africa\u2019s economy is screwed if politicians can\u2019t get their act together<\/a><\/strong><\/p>\n Watch: How South Africa\u2019s nuclear plans will destroy the economy<\/a><\/strong><\/p>\nNews24<\/a><\/h3>\n
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