No Moody blues for South Africa

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No Moody blues for South Africa

Published Date: 2018-03-26 | Source: Stephen Gunnion | Author: Stephen Gunnion

No Moody blues for South Africa

The ratings agency has maintained its investment-grade rating for the country and has lifted its outlook to stable

President Cyril Ramaphosa's actions since taking over the leadership of the country have staved off a ratings downgrade to full junk. In a late night statement on Friday, Moody's Investors Service confirmed the country's sovereign credit rating at Baa3 and changed the outlook on its debt to stable from negative. In November, the ratings agency placed South Africa on review for a downgrade.

Moody's said the confirmation of the credit rating reflects its view that the previous weakening of the country's institutions would gradually reverse under a more transparent and predictable policy framework. The recovery of the institutions would, if sustained, gradually support a corresponding recovery in the economy, along with a stabilisation of fiscal strength.

A downgrade would have resulted in South African government debt being excluded from the influential Citi World Government Bond Index. Inclusion requires an investment-grade rating by either Moody's or Standard & Poor's, which cut the country's local-currency rating to sub-investment grade last year.

Since taking over the presidency last month, Ramaphosa has shuffled his cabinet, returning Nhlanhla Nene as Finance Minister and Pravin Gordhan as Minister of Public Enterprises. Analysts said the suspension of Tom Moyane as commissioner of the SA Revenue Service last week may also have tipped the balance in favour of an investment-grade rating.

The recent change in political leadership appears to have halted the gradual erosion of the strength of South Africa's institutions," Moody's vice president Zuzana Brixiova said in a statement. "With changes in governance, a number of key institutions, including the Treasury, the South African Revenue Service and key State-Owned Enterprises have embarked on the recovery of their earlier strength. The technical strength and independence of South Africa's media, civil society and institutions, including key ministries, the Reserve Bank and the judiciary, have been critical in sustaining the country's credit profile over time."

However, Brixiova said the new administration faced equally significant opportunities and challenges and would need to meet the objectives set out in Ramaphosa's State of the Nation Address.

"Success offers the prospect of a virtuous circle of economic recovery, fiscal consolidation and rising social cohesion," she said. "But the political, policy and practical challenges of meeting diverse economic, social and fiscal objectives cannot be underestimated. Failure, at least as perceived by investors or voters, could lead to a further cycle of eroding economic, fiscal and institutional strength."

Responding to Moody's, National Treasury said the government fully recognised its assessment of the challenges and opportunities the country faced in the immediate to long term. To improve the country's investment and economic prospects, it said the government continued to work diligently on practical steps to provide the necessary policy certainty such as the finalisation of mining legislation.

The rand strengthened to R11.72 to the US dollar following the next from Friday's close of R11.77. It was also firmer against the pound and the euro.



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