Moody’s could downgrade SA in coming months, says economist

On Friday the ratings agency gave the budget a negative rating.

Finance Minister Tito Mboweni delivers the 2018 Medium-Term Budget Policy Statement in Parliament on 24 October 2018. Picture: GCIS

CAPE TOWN - There are concerns that Moody’s negative rating of the mid-term budget could have a knock-on effect on the rand.

On Friday the ratings agency gave the budget a negative rating.

In his maiden Medium-Term Budget Policy Statement this week, Finance Minister Tito Mboweni committed to stabilise government finances.

Economist Annabel Bishop says Moody’s could look to downgrade South Africa in the coming months.

“An environment where we see higher oil prices and currency weakness does tend to contribute to a higher cost of living in South Africa. Moody’s saying out MTBPS is negative is not a good outcome for us.”

Mboweni predicted wider budget deficits and cut growth forecasts in his medium-term budget on Wednesday, laying bare the challenges he faces at a time of revenue shortfalls and ballooning debt.

"The government's revised budget policy statement projects larger fiscal deficits and higher government debt, amid slower growth, a weaker rand and higher interest rates than expected in February, a credit negative," Moody's said in a research note.

"Government debt is now likely to stabilise later and at a higher level than we previously expected."

Moody's is the last of the top three agencies to keep an investment grade rating on South Africa. The rand turned weaker after Moody's report was released.

_Additional reporting by Reuters. _

(Edited by Shimoney Regter)