South Africa\u2019s credit rating may be cut to junk if its policies become \u201ceven less predictable\u201d or shift in a way that could undermine the economy, Moody\u2019s Investors Service said.<\/p>\n
Policy uncertainty and political turmoil have increased in the last two months as the nation\u2019s anti-graft ombudsman instructed lawmakers to change the central bank\u2019s mandate, the mines minister published new regulations that the industry says undermine investment and President Jacob Zuma\u2019s defeat of a no-confidence motion in parliament weakened the rand. South Africa entered a recession in the first quarter.<\/p>\n
\u201cFurther delays in growth-enhancing reforms would be suggestive of such a shift,\u201d Moody\u2019s analysts including Zuzana Brixiova said in a credit-opinion report. \u201cDownward pressure could also develop if liquidity pressures begin to re-emerge at state-owned enterprises that would elicit pronounced government intervention, be it through the activation of guarantees or other measures.\u201d<\/p>\n
In June, Moody\u2019s cut its assessment on South Africa\u2019s local- and foreign-currency debt to one level above junk after a March cabinet shuffle in which Zuma fired Pravin Gordhan as finance minister. The president\u2019s move prompted S&P Global Ratings and Fitch Ratings Ltd. to cut the nation to sub-investment grade within a week.<\/p>\n
Rising Debt<\/strong><\/p>\n Rating companies are concerned about rising debt and deteriorating governance at state-owned entities such as national carrier South African Airways and power producer Eskom Holdings SOC Ltd., saying that they weigh on the country\u2019s debt assessment.<\/p>\n SAA asked the government for 10 billion rand ($754 million) as part of a recapitalization plan aimed at returning it to profit, Finance Minister Malusi Gigaba said last month. Eskom, which previously received a 23 billion-rand state bailout, will get more government support, he said.<\/p>\n \u201cThe future trajectory of the rating will depend on the government\u2019s success in safeguarding South Africa\u2019s institutional, economic and fiscal strength,\u201d Moody\u2019s said.<\/p>\n The rand strengthened 0.4 percent to 13.2659 by 10:30 a.m. in Johannesburg, making it the best-performing major currency against the dollar after Australia\u2019s on Tuesday.<\/p>\n
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