{"id":208941,"date":"2017-11-03T15:40:44","date_gmt":"2017-11-03T13:40:44","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=208941"},"modified":"2017-11-03T15:40:44","modified_gmt":"2017-11-03T13:40:44","slug":"why-full-junk-status-for-south-africa-is-inevitable","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/finance\/208941\/why-full-junk-status-for-south-africa-is-inevitable\/","title":{"rendered":"Why full junk status for South Africa is inevitable"},"content":{"rendered":"

The negative outlook of the credit rating agency Moody\u2019s regarding the South African Government\u2019s ability to repay its debt is a clear signal that a downgrade of the country\u2019s domestic debt to sub-investment grade, or junk status, is imminent.<\/p>\n

This is according to Dr Conrad Beyers from the Department of Actuarial Science at the University of Pretoria. Beyers is also Barclays Africa’s chair in Actuarial Science.<\/p>\n

He said that many investors and institutions do not yet regard South African Government debt as true \u2018junk\u2019, due to the fact that local currency denominated debt is still considered investment grade.<\/p>\n

“The economic aftershocks of a downgrade of domestic debt is expected to be roughly six times as severe as the junk status downgrade of the country\u2019s external debt obligations,” he warned.<\/p>\n

“The exposure of foreign investors and institutions to rand-denominated government debt makes up close to two thirds of this debt. South Africa\u2019s \u2018junk status\u2019 debt consists of only around 10% of total Government debt. If the other 90% is downgraded, South Africa debt can be regarded as real junk.”<\/p>\n

According to Beyers, Moody\u2019s is traditionally the rating agency that had the most positive credit ratings and outlook for South Africa.<\/p>\n

“If Moody\u2019s is \u2018threatening\u2019 to downgrade our domestic debt, one can assume that other rating agencies are likely to consider even stronger decisions. A single notch downgrade by Moody\u2019s or S&P Global will immediately put South African domestic debt at junk level.”<\/p>\n

It is especially concerning that Moody\u2019s implicitly says that a single shock to the South African economy may have a significant effect on the Government\u2019s ability or willingness to repay debt.<\/p>\n

According to Beyers, such an economic shock appears likely due to the fact that political risks currently overshadow all other risks faced by the South African economy. A downgrade could be triggered over the next six months due to any of at least five critical factors:<\/p>\n