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Moody's cuts SA’s credit rating outlook to 'negative'

Moody's is warning South Africa faces a prolonged period of slow growth.

Picture: Facebook.

JOHANNESBURG - After last week's shock removal of Finance Minister Nhlanhla Nene, ratings firm Moody's has cut South Africa's credit rating outlook to negative.

It's maintained the country's investment grade at the second-lowest, one level above the rankings of Standard & Poor's and Fitch.

Moody's is warning South Africa faces a prolonged period of slow growth because of 'persistent structural challenges' as well as increasing political pressures.

SOUTH AFRICA ADDRESSING MOODY'S CONCERNS ABOUT FISCAL SLIPPAGE

South Africa's Treasury said on Wednesday it was addressing concerns about the rising risk of fiscal slippage raised by ratings agency Moody's, pledging to focus on debt stabilisation in the medium term.

Moody's Investors Service cut its outlook on South Africa to "negative" from "stable" late on Tuesday, citing structural challenges in the country's mining industry and increasing political pressures.

The decision came after a week of turmoil and sell-offs triggered by President Jacob Zuma's unexpected decision to fire Finance Minister Nhlanhla Nene, and replace him with a little known lawmaker and loyalist.

After fierce criticism, Zuma appointed his third finance minister in a week, bringing in Nene's widely-respected predecessor Pravin Gordhan.

"The reappointment of Minister Pravin Gordhan as the Minister of Finance will ensure policy continuity," a statement issued by the Treasury said.

"The minister has affirmed that government will stay the course of sound fiscal management and focus on fiscal consolidation and debt stabilisation in the medium term."

South Africa is in the midst of its worst electricity crisis and has had to cut power as it struggled to meet demand, hurting economic growth. The treasury said resolving that crisis was an "immediate priority".

South Africa faced persistent fiscal pressures due to high unemployment and poverty, Moody's said.

"Political pressures growing, calling into question the government's continued ability to maintain spending restraint," Moody's said, citing the cost of government's plan to build nuclear power station and high public sector wages as risks.

Former Finance Minister Nhlanhla Nene, had long been reluctant to rubber-stamp an ambitious government plan to build nuclear power stations at an estimated cost of up to $100 billion.

On Thursday Gordhan said government would only go ahead with the nuclear program if it was affordable.

"I don't think that there is any one policy that is going to turn things around, but I think that investors would be like to see some evidence that the government has a new policy," Africa analyst at Capital economics John Ashbourne said.

"The obvious problem, though, is that fiscal constraints mean that the market would not welcome the announcement of massive new spending."