Moody's Investors Service today downgraded the long-term issuer and senior unsecured ratings of the Government of South Africa to Baa3 from Baa2 as well as the senior unsecured Shelf and MTN program ratings to (P)Baa3 from (P)Baa2, and assigned a negative outlook. The government's senior unsecured short-term program rating was also downgraded to (P)P-3 from (P)P-2. The rating actions conclude the review for downgrade that commenced on 3 April 2017.
The key drivers for the downgrade are:
1) the weakening of South Africa's institutional framework;
2) reduced growth prospects reflecting policy uncertainty and slower progress with structural reforms; and
3) the continued erosion of fiscal strength due to rising public debt and contingent liabilities
The Baa3 rating recognizes a number of important strengths that continue to support South Africa's creditworthiness. However, the negative outlook reflects the continued downside risks for growth and fiscal consolidation associated with the political outlook. Over the medium-term, economic and fiscal strength will remain sensitive to investor confidence and hence uncertainty surrounding political developments, including prospects for structural reforms intended to raise potential growth and flexibility in fiscal expenditures.
In a related decision, Moody's also downgraded to Baa3 from Baa2 the backed senior unsecured debt issued by ZAR Sovereign Capital Fund Propriety Limited, a special purpose vehicle whose debt issuance is ultimately the obligation of the South African government, and assigned a negative outlook.
South Africa's long-term local-currency bond and deposit ceilings were lowered to A2 from A1, and the long-term and short-term foreign-currency bond ceilings lowered to A3/P-2 from A2/P-1, respectively. The long-term foreign-currency bank deposits ceilings was lowered to Baa3 from Baa2, while the short-term foreign-currency bank deposits ceiling was lowered to P-3 from P-2.
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