Moody's makes Tito tremble

SA's policymakers have come in for harsh words from rating agency Moody's, which finally junked SA's rating late on Friday night after three years of warnings.

The agency signalled that it might cut the rating even further into junk territory, saying SA's economic growth and its public debt could turn out even worse than expected.

Moody's said SA had made only limited progress on structural reforms, and economic growth would remain very low in coming years, even after the sharp downturn caused by the Covid-19 pandemic.

The public debt burden would rise to well over 90% in the next five years "under any plausible economic and fiscal scenario".

The Treasury's response was unusually heartfelt. "The decision by Moody's could not have come at a worse time," it said. "The sovereign downgrade will further add to the prevailing financial market stress . We are trembling in our boots."

Moody's also kept SA on "negative outlook", indicating a further downgrade could be on the cards in the next 12-18 months. It was the last of the big three global rating agencies that still had an investment grade rating on SA, and its decision will mean that foreign investors such as pension funds - whose mandates limit them to investment-grade bonds - will have to sell off.

This will trigger an outflow of up to $8bn (about R140bn at yesterday's rate) and put fresh pressure on the local currency.