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Moody’s places SA’s credit rating on review for downgrade

The review will allow Moody’s to assess these risks and if the changes in leadership signals a weakening in the country's institutional, economic and fiscal strength.

Moody's Investors Service. Picture: Facebook.

JOHANNESBURG – Moody’s ratings agency placed South Africa's sovereign credit rating on review for downgrade on Monday, saying that the decision was prompted by an abrupt change in leadership of key government institutions.

South Africa’s sovereign is currently two notches above non-investment grade at Baa2.

The review will allow Moody’s to assess these risks and if the changes in leadership signals a weakening in the country's institutional, economic and fiscal strength.

South Africa’s (P) Baa2 Senior Unsecured Shelf and MTN program ratings were also placed under review for downgrade, as was the (P)P-2 Senior Unsecured Short-Term rating.

The country’s long-term local-currency bond and bank deposit country ceiling remain unchanged at A1. The long-term foreign-currency bond and bank deposits country ceilings remain unchanged at A2 and Baa2, respectively.

TREASURY ON DOWNGRADE

Treasury has given its first reaction to Standard & Poor’s (S&P) Global’s decision to downgrade South Africa to junk status.

S&P has lowered South Africa sovereign credit rating to BB+ or junk status.

This is from BBB minus with money now set to become more expensive for the government to borrow.

The ratings agency says it’s taken the decision on the back of political and institutional uncertainty.

Fears of a downgrade were raised last week already, when President Jacob Zuma announced his Cabinet reshuffle, in which Pravin Gordhan was axed.

S&P says in its opinion, the executive changes initiated by Zuma have put at risk fiscal and growth outcomes.

Treasury released a statement on Monday evening, saying it’s noted the downgrade.

It says newly installed Finance Minister Malusi Gigaba will hold a briefing.

Treasury says it's committed to a stable fiscal policy after rating agency S&P Global announced South Africa's downgrade to junk status citing the recent political developments.

In its statement, Treasury says while the leadership of the finance portfolio has changed, government's overall policy orientation remains the same.

It goes on to say South Africa is committed to a predictable and consistent policy framework, which responds to changing circumstances in a measured and transparent fashion.

Spokesperson Mayihlome Tshwete says: “The issues that they have raised are matters around the political matters. The minister will be announcing the interventions he is going to be making to try and resolve or stabilise the concerns that they have brought up.”

ECONOMISTS REACT WITH SHOCK

Economist at Argon Asset Management Thabi Leoka says it's bad news for the country.

"This is the breaking point and it really is up to politicians and up to South Africans to decide whether we are going to take 12 years or two years to come out of this situation we are in.”

Nedbank's Isaac Matshego says there’s been a lot of policy confusion in government over the past few years which is finally catching up.

“There is this talk about radical economic transformation which, unfortunately, is not very clear what it means. What we need is macro-economic stability, even in the African National Congress’s economic transformation document.”

The rand fell by as much 2% to the dollar on Monday evening in response to the news of that downgrade, while government bonds also weakened sharply.

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