Here's what could trigger another downgrade in South Africa

16 August 2017 - 11:34 By Sunita Menon
Cape Town skyline. File photo.
Cape Town skyline. File photo.
Image: Gallo Images/ IStock

While Moody’s did not publish a ratings decision on South Africa last week as scheduled‚ the credit rating agency has warned of the possible issues that could lead to another downgrade.

In June Moody's cut South Africa's debt by a single notch to Baa3‚ one level above subinvestment‚ with a negative outlook after the cabinet reshuffle which saw President Jacob Zuma fire former Finance Minister Pravin Gordhan and his deputy Mcebisi Jonas.

Last week‚ Moody's said there have been no major events to warrant a ratings review for South Africa.

The Credit Rating agency will downgrade South Africa again if the government does not safeguard the country's institutional‚ economic and fiscal strength.

In a credit opinion released on Wednesday‚ Moody’s said: “Indications that the strength and independence of the country’s institutions have diminished to a greater extent than in Moody’s baseline scenario‚ or that the emerging policy framework has become even less predictable or has shifted in a way likely to undermine economic or fiscal strength‚ could lead to a further downgrade.”

It added that delays in reforms to stimulate growth would signify this shift and warned that guarantees to state-owned enterprises (SOEs) remained a concern.

Moody’s added‚ however‚ that it could change the rating outlook to stable if the government were to implement policies that “indicated the continued independence and strength of South Africa’s policy institutions‚ and which enhanced medium-term growth and achieved the planned stabilization in the government’s debt burden”.

It added that a decline in guarantees to SOEs would be “credit positive”.

- TimesLIVE/BusinessLIVE