Moody's outlook backs Cyril
Ratings agency Moody's says it will keep its stable outlook on SA's credit rating, banking on a strong policy response it expects from President Cyril Ramaphosa.With the election over and Ramaphosa showing political willingness to tackle some reforms, the agency's vice-president and senior credit officer responsible for SA, Lucie Villa, said this week that the president has some room to manoeuvre. "There is still scope and a window for a policy response to gradually address economic and fiscal issues," she said.Villa this week gave investors Moody's outlook on SA in the wake of the state of the nation address and Ramaphosa's announcement of his cabinet.Moody's is the only one of the three major investment ratings agencies that has not slashed SA's sovereign debt to sub-investment grade (or "junk"), keeping it at Baa3 witha stable outlook.S&P Global Ratings and Fitch Ratings downgraded the country's sovereign debt to junk in 2017, shortly after former president Jacob Zuma sacked Pravin Gordhan as finance minister. Moody's has high expectations for Ramaphosa and his new cabinet, but Villa is well aware of the wrangling in the ANC's national executive committee (NEC)"Of course we keep a close eye on NEC policy announcements on the economic front and we are waiting for more fiscal policy," she said. The agency expects the medium-term budget policy statement to shed more light on the way forward, she said.SA's low growth presents quite a challenge, with the latest data from Stats SA showing that the country's economy contracted 3.2% in the first quarter of 2019. A top concern for Moody's is how the government plans to turn Eskom around."Eskom remained the main fiscal risk for us and probably many analysts looking at SA. It is still too early for us to state our view," said Villa.The power utility has long been a thorn in the government's side, as capital injections and guarantees on the state-owned entity's debt stretch the national budget and taxpayers' purses.Ramaphosa last week said the government would bring forward the spending of more of the R230bn it has budgeted for Eskom over the next 10 years. In February, the government allocated R23bn to Eskom over the next three years, for Eskom's restructuring. In its Financial Stability Review last month, the South African Reserve Bank said the country's fiscal position had weakened further because of pressures such as the funding of state-owned companies, including Eskom.This, said the Bank, could increase the risk of a sovereign credit rating downgrade to sub-investment grade by Moody's.However, it could be some time before that happens, with Villa saying that the ratings agency will be watching the new government's progress over the next three years."The question from me is trying to take a look at the longer term and trying to see how much more the government will have to provide to Eskom, and today is probably still in the early stage and difficult to quantify."Villa noted that Ramaphosa's latest and previous state of the nation addresses dealt with the very issues Moody's was concerned about. "It's interesting how it is very targeted to the main credit issues we as Moody's have identified," she said.