Moody\u2019s, say former government officials, investors and economists, has kept South Africa investment-grade partly because of history, partly because of methodology.<\/p>\n When South Africa emerged from apartheid and the consequent international isolation in 1994 under the leadership of Nelson Mandela, one of the first things it sought was a credit rating that would allow the government to access funding in international markets. Fitch responded with a BB rating, two levels below investment grade, and S&P followed suit.<\/p>\n Then came Moody\u2019s, with an assessment of Baa3, the lowest investment rating and two levels higher than the others. Mandela\u2019s charisma had something to do with it, according to Estian Calitz, director-general of the Treasury at the time and now an economics professor at Stellenbosch University.<\/p>\n But South Africa also worked hard to earn credibility, he said.<\/p>\n The president and his cabinet \u201chad a profound understanding of what it would take to get South Africa back to international markets,\u201d maintaining fiscal discipline even as they pursued policies aimed at redressing economic inequalities, Calitz said earlier this year.<\/p>\n President Thabo Mbeki, who succeeded Mandela in 1999, continued along that path, and South Africa\u2019s credit rating improved during his administration. It reached its apex with Moody\u2019s in 2009, a year after Mbeki was replaced by Jacob Zuma.<\/p>\n That\u2019s when the tide started turning, according to Lungisa Fuzile, a former director-general of the Treasury who resigned from office during Zuma\u2019s presidency.<\/p>\n A series of downgrades ensued, sparked by a slowing economy, institutional decline and rising political risks, including Zuma\u2019s firing of his respected finance minister, Nhlanhla Nene. By 2017, Fitch and S&P had the country at junk, while Moody\u2019s had shaved its rating by three levels.<\/p>\n Moody\u2019s and S&P consider broadly similar factors when making their assessments, according to information published on their websites: The economy, institutional strength, fiscal position and susceptibility to event risk. But Moody\u2019s appeared to give greater weight to the institutional and political factors that underpin the willingness to repay debt, according to Calitz.<\/p>\n \u201cThe rating companies had two questions in 1994: Can you repay foreign debt and service debt until maturity, and will you do it?\u201d said Calitz. \u201cThe political factor seemed to have weighed a bit more with Moody\u2019s than with S&P. Moody\u2019s seemed to look more at the political economy whereas S&P was stronger on the technical factors.\u201d<\/p>\n It\u2019s not like Moody\u2019s hasn\u2019t come close to cutting South Africa to junk. The company placed it on review for a cut to sub-investment grade in December 2017. But when the review was concluded three months later, the country kept its Baa3 rating and was rewarded with an outlook change to stable from negative.<\/p>\n Market pricing indicates it\u2019s only a matter of time before Moody\u2019s comes into line with its competitors. The cost of insuring South Africa\u2019s debt for five years using credit-default swaps is more than double that for Russia, which has a similar rating at Moody\u2019s. And it\u2019s higher than that of Brazil, which is rated junk.<\/p>\n The premium investors demand to hold South Africa\u2019s dollar debt rather than similar-maturity U.S. Treasuries, at 345 basis points, is about on par with Bolivia, rated one step below investment level, and Jamaica and Belarus, both six notches into junk. And among emerging markets, only junk-rated Turkey, Lebanon and Nigeria pay more for 10-year local-currency debt.<\/p>\n![\"\"](\"https:\/\/businesstech.co.za\/news\/wp-content\/uploads\/2019\/11\/A-friend-in-Moodys.png\")
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