Moody’s changes SA’s outlook to negative from stable

Moody’s said the outlook revision on its ‘Baa3’ rating, the lowest rung of investment grade, was motivated by a deterioration in the economic growth outlook and rising debt.

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

JOHANNESBURG - Ratings agency Moody’s has kept the country one notch above investment grade but has changed the outlook from stable to negative.

The agency has painted a grim picture of the country’s economy, showing it’s concerned with the immediate future.

Moody’s is the last of the three big rating agencies to keep the country in positive territory.

Moody’s currently rates South Africa at BAA3, the last rung before sub-investment grade.

It said obstacles posed by high unemployment, income inequality, social and political challenges were proving to be more severe than expected.

The agency said lower growth forecasts reflected deeply entrenched constraints on growth and reform. Added to this, acute financial stress in state enterprises, in particular, Eskom, continues to require sizeable ongoing support from the government.

This is not good new as Moody’s may be forced in future to change its mind about its rating. S&P Global and Fitch already have the country in sub-investment grade, dropping their ratings to junk status in 2017.


Analysts had expected the move after a bleak mid-term budget statement this week that slashed this year’s growth forecast to 0.5% and showed government debt racing to more than 70% of gross domestic product by 2023.

The rand tumbled more than 2.5% over the past week against the dollar, its sharpest weekly drop since early August. Yields on local 10-year government bond issues ZA10YT=RR traded on Monday at just over 8% but climbed as high as 8.6% following the dire budget predictions.

The negative outlook means there is a window of 12-18 months in which a downgrade could be delivered, but it could come sooner if Moody’s isn’t impressed by the fiscal picture presented at the next budget statement in February.

“The development of a credible fiscal strategy to contain the rise in debt, including in the 2020 budget process and statement, will be crucial to sustaining the rating at its current level,” Moody’s said in a statement after South African financial markets had closed.

It added that its new outlook reflected rising concern that the government would not find “the political capital to implement the range of measures it intends, and that its plans will be largely ineffective in lifting growth”.

The finance ministry responded by saying the country had “a narrow window to demonstrate faster and concrete implementation of reforms”.

Ramaphosa has struggled to revive Africa’s most advanced economy since taking over from scandal-plagued Jacob Zuma in February 2018.

The wave of optimism among foreign and local investors that accompanied his rise to power has fizzled out as the economic challenges have grown more acute, with unemployment reaching an 11-year high above 29% ZAUNR=ECI and state power company Eskom struggling to keep the lights on.

One of the greatest worries is rising government debt, which shows no signs of stabilising soon amid repeated bailouts for state-owned companies.

Additional reporting by Reuters.