There is a high chance that Moody’s rating agency will downgrade South Africa’s sovereign credit rating later this week, Nedbank predicted in its weekly monitor on Monday.
Moody’s currently rates South Africa at Ba1 with a negative outlook, while S&P Global rates it at BB- with a stable outlook.
Reviews expected on Friday
Both are set to release their rating reviews on Friday (20 November), with Fitch’s (BB with negative outlook) update is expected in late November or early December.
Nedbank said, “Moody’s unfavourable assessment of the Medium-Term Budget Policy Statement (MTBPS) points to a high chance of another downgrade.
“It anticipates slow economic recovery due to delayed implementation of growth-boosting measures, while it projects the budget deficit to remain above 10% of GDP over 2021 and 2022, with its forecasts 2.5 percentage points wider than the National Treasury’s.
“Consequently, the debt-to-GDP ratio will breach 100% in 2022 and debt service costs will rise to 6.6% of GDP by 2022 versus the National Treasury’s 5.6%.”
‘Lack of detail’
Finance Minister Tito Mboweni presented the MTBPS in October, after which Moody’s flagged its lack of detail.
It said, “Although the government’s focus remains on structural reform and fiscal consolidation, this year’s MTBPS, like last year’s, does not outline how and when it will implement policies to boost growth and arrest the deterioration in public finances.
“As a result, we expect the economy will remain subdued and for fiscal consolidation to be slow, sustaining the rise in government debt in the next couple of years.”
Nedbank said it expects S&P Global to affirm its BB- rating of South Africa, but revise the outlook to negative.
Citing deteriorating fiscal strength and weak economic growth, Moody’s downgraded South Africa from Baa3 to Ba1 – effectively sub-investment grade or “junk status” – in March this year.
This meant that the country had achieved junk rating from all the three major global rating agencies.
Speaking at the SA Investor Tomorrow Conference on Monday, Mboweni said the government is committed to stabilising South Africa’s fiscal framework.
“We are determined to ensure that we don’t break the fiscal framework which we have put in place… and to keep debt to GDP under control,” he said.