South Africa could see rating uptick on reforms, Moody's says

17 October 2018 - 09:38 By Ana Monteiro
Illustration photo shows a two-rand coin above a South Africa flag. File photo.
Illustration photo shows a two-rand coin above a South Africa flag. File photo.
Image: REUTERS/Thomas White

South Africa could see its credit rating upgraded if it successfully implements structural reforms that would raise economic growth and stabilise the nation’s debt burden, Moody’s Investors Service said.

Reforms to state-owned companies that reduce contingent liabilities would exert upward pressure on ratings, Lucie Villa, a vice president and senior credit officer who’s the lead analyst for South Africa at Moody’s, said in a research report Tuesday. Conversely, the assessment would be cut if the state doesn’t stabilise debt and liabilities, she wrote.

Ratings companies have flagged state firms’ finances as a concern in recent years. Moody’s is the only one of the three major credit-rating companies that still assesses South Africa’s debt at investment grade. Optimism following President Cyril Ramaphosa’s ascent to power since December after Jacob Zuma’s corruption-plagued tenure of almost nine years has faded somewhat as structural reforms weren’t implemented fast enough.

Government guarantees to state companies are at more than 450 billion rand ($32 billion), according to data from the National Treasury. The state’s exposure to this increased to 64.5% in the past fiscal year from 54.4% as companies drew on the guarantees.

The economy is struggling to emerge from a first-half recession. Last year, a widening fiscal deficit and slower economic growth projections led S& P Global Ratings and Fitch Ratings Ltd. to strip the country of its investment rating, sending yields skyrocketing and the rand weaker.

The rand weakened 0.3% to 14.2041 per dollar as of 7:22 a.m. in Johannesburg after rallying almost 1.5% on Tuesday. Yields on rand-denominated bonds due in December 2026 were little changed at 9.16%.