South Africa\u2019s tenuous hold on the stable outlook on its sole investment-grade credit rating may slip with Finance Minister Tito Mboweni expected this week to show a marked deterioration in the state of the nation\u2019s finances.<\/p>\n
Of the 17 economists in a Bloomberg survey, nine forecast that Moody\u2019s Investors Service will change its outlook on the nation\u2019s credit rating to negative before the end of the year. That\u2019s as billions of dollars in bailouts for the cash-strapped Eskom Holdings SOC Ltd. will probably push the budget deficit to a decade high and the economy is struggling to gain traction after last year\u2019s recession.<\/p>\n
Mboweni will present the medium-term budget policy statement, that outlines plans for the next three years, in Cape Town on Oct. 30, two days before Moody\u2019s is due to reassess South Africa\u2019s rating.<\/p>\n
The company may end up only issuing a research report without a ratings action, or nothing at all. It didn\u2019t give assessments on the last two scheduled dates.<\/p>\n
While the focus will be on the budget and how the government will rein in debt that\u2019s fast approaching 60% of gross domestic product, investors and ratings companies are also looking out for long-awaited structural reforms by President Cyril Ramaphosa\u2019s government.<\/p>\n
Mboweni is expected to soon release an updated version of his August economic policy paper that proposes a raft of steps to boost economic growth.<\/p>\n
Also, investors are waiting for details of plans announced months ago to split Eskom into three operating units and reorganize its $30 billion mountain of debt, while the utility still doesn\u2019t have a permanent chief executive officer.<\/p>\n
\u201cMoody\u2019s main concern is the direction of structural reform,\u201d said Danelee Masia, an economist at Deutsche Bank. \u201cIf delivered, this will help to raise potential growth, and stabilize if not reduce the fiscal gap.\u201d<\/p>\n
Going Backward<\/strong><\/p>\n S&P Global Ratings and Fitch Ratings cut the nation to junk in 2017. Losing the Moody\u2019s investment-grade rating means South Africa will fall out of key debt gauges including the FTSE World Government Bond Index, which according to International Monetary Fund estimates could trigger forced outflows of about $1.5 billion.<\/p>\n Moody\u2019s said last month that a R128 billion ($8.7 billion) three-year package for the power producer will add to state liabilities and widen the deficit. Eskom supplies around 95% of South Africa\u2019s electricity and resumed rolling blackouts this month to avoid a collapse of the grid.<\/p>\n Read more about the forecasts for South Africa\u2019s budget deficit and economic growth<\/p>\n Moody\u2019s will view the weak fiscal metrics as credit negative and the recent resumption in power outages will further weigh on the economic outlook and \u201craise the prospect of the state having to cough up even more bailout funds,\u201d said William Attwell, the London-based head of sub-Saharan Africa research at DuckerFrontier, an adviser to multinational firms.<\/p>\n Forced Outflows<\/strong><\/p>\n A negative outlook means the next move on the credit rating may be a downgrade, which would leave South Africa without an investment-grade ranking for the first time in 25 years.<\/p>\n However, it could take as many as 18 months for a ratings move to happen following an outlook change. None of the economists surveyed by Bloomberg see Moody\u2019s taking the country to junk this year and only four of 15 predicted the company will cut South Africa to sub-investment grade in 2020.<\/p>\n \u201cThe trajectory of South Africa\u2019s credit ratings will be dependent on the government\u2019s ability to deliver fiscal consolidation and implementation of growth-lifting structural reforms,\u201d said Miyelani Maluleke, a senior economist at Absa Bank Ltd.<\/p>\n
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