SA’s credit rating unchanged as Moody’s skips scheduled review

SA’s credit rating unchanged as Moody’s skips scheduled review

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South Africa has dodged a bullet, for now, after Moody’s Investor Services skipped its scheduled review of the country’s credit rating on Friday.

This is a move that could mean that the agency needs more time to assess South Africa’s economic prospects amid the Covid-19 vaccine rollout and threats of a third wave.

The ratings agency was scheduled to release its review Friday night but issued a note indicating that “no ratings were updated for” South Africa, including Italy and Denmark among others.

It also did not indicate when the next ratings announcement could be.

Moody’s could possibly be requiring additional time to determine whether South Africa’s sovereign rating has any prospect of changing for the better as the country is ramping up its Covid-19 vaccination programme.

The government is also locked in negotiations with public sector workers unions over wages as it tries to freeze salary increases over the medium term to shore up the fiscus.

South Africa’s economy is forecast to rebound to 3.4 percent this year from a 7 percent contraction last year as the global economy is on a path of recovery due to vaccines distribution.

In a separate report, Moody’s said global trade has rebounded and will continue to recover over 2021, although virus resurgence and uneven recoveries across countries threatens the recovery.

“Geopolitical tensions, new sanctions and export controls, and domestic policy focus will complicate trade negotiations,” it said.

“Supply-chain considerations will drive shifts in business strategies in strategic sectors.”

In November 2020, Moody’s downgraded South Africa’s rating to Ba2 with a negative outlook due to concerns over rising debt and deteriorating fiscal metrics.

South Africa saw its borrowing trajectory increase sharply last year to meet the fiscal stimulus needs presented by the pandemic, while revenue fell off on lockdown restrictions.

Following an improved Budget Review in February 2021, Moody’s warned that the slightly lower budget deficit would not prevent the government debt from rising, and that downside risks remained elevated.

Economists were not expecting a downgrade from Moody’s South Africa’s bonds deeper into junk though they expressed concern over the slow pace of economic recovery.

Citadel Global director Bianca Botes said they were not expecting Moody’s would spare South Africa for now though State-owned enterprises were deteriorating.

“While we are not anticipating a downgrade, we do expect the agency to remain critical of the fiscal position, the economic growth trajectory, as well as the state of state-owned enterprises, in particular Eskom,” Botes said.

Anchor Capital’s investment analyst Casey Delport predicted that Moody’s would more than likely hold off a downgrade this time.

“Given that the agency maintained a negative outlook on the rating, we believe that further downgrades are more likely than not,” Delport said.

“However, given the recent improvements in economic activity and fiscal data, we believe that Moody’s will keep the ratings unchanged at this stage.”

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