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Moody's keeps South Africa's sovereign rating at Baa2, negative outlook

The ratings agency has kept South Africa's sovereign rating unchanged at Baa2.

A sign for Moody's rating agency stands in front of the company headquarters in New York in 2012. Picture: AFP.

JOHANNESBURG - Credit ratings firm Moody's Investors Service kept South Africa's sovereign rating unchanged at Baa2 on Friday, two levels above subinvestment grade, with a negative outlook.

Africa's most industrialised country, which is expected to see economic growth of around 0.5 percent half a percent this year, has been trying to avert a sovereign rating downgrade to junk status that would raise borrowing costs and deter investment.

"The negative outlook on South Africa's Baa2 government bond rating reflects risks related to the implementation of structural reforms aimed at restoring confidence and encouraging investment, upon which Moody's bases its expectations for a gradual growth recovery and debt stabilisation in coming years," Moody's said in its statement.

"The negative outlook also recognises the downside risks associated with political uncertainty and low business confidence as well as the challenging external environment characterized by low growth, investment and trade," the agency said.

"South Africa's rating would likely be downgraded in the absence of fundamental structural reforms supporting higher and sustainable medium-term growth. Continued accumulation of public debt and contingent liabilities in terms of GDP would also put downward pressure on ratings. Finally, political infighting impeding the government's ability to implement key structural reforms and contributing to protracted low business confidence would also be negative."

On Friday, Fitch revised its outlook for South Africa to negative, but kept its rating unchanged at BBB-.

Fitch listed a number of issues including political risks, standards of governance and policy-making.

It says it expects only modest GDP growth of 1.3% next year and 2.1% in 2018.