President Jacob Zuma File picture: Kim Ludbrook/EPA

JOHANNESBURG - Economists warn that rating agency, Moody's has no obligation to wait to downgrade the country, despite the agency being on record stating that it would wait for both the elective conference as well as the budget speech next year.

Moody's has previously stated that it would be closely watching both the national elective conference as well as the budget speech which is set for February next year - with expectations of implemented fiscal discipline in the budget.

Despite this, Economist, Soria Hay says that the rating agency has a responsibility towards investors who buy their report and no obligation towards South Africa, despite the agency being "friendly and accommodative"  to the country in the past.

Hay warns that the worst possible outcome would be no outcome, "if there is chaos and a candidate is not elected, then that would spook everyone  - both domestic and international investors. From a market and economic perspective, Cyril is the preferred candidate," Hay says.

"I think the financial markets look at Cyril as the candidate who would provide more certainty, the reason for that is that backers of Nkosazana Dlamini Zuma included militant groups who want land, banks and the mines to be nationalised," Hay says.

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"I think it's very likely that we'll get downgraded if - one, there is no outcome and two, if Cyril doesn't win."

"The other thing that will definitely happen should we get downgraded is that the South African bond will fall out of the City Group World Government index because the said index cannot hold junk status instruments," Hay warned.

"Some of your large international trucker funds and other funds which can only invest in investment grade instruments will have to sell out of their bonds immediately."

"Moody's is the only rating agency keeping us in the international bond index. So despite them saying that they would wait for next year's budget speech, there is a real possibility of them downgrading us immediately, says Hay.

Hay says that the impact of another downgrade, whether it's after the conference or after the budget speech, is 40% of our government bonds which are held internationally, would be affected.

" If we look at what happened with Steinhoff, where basically there was a scramble and everybody dumped their shares; I think that's what we could expect from our bond market." 

"Meaning that although people will pick up the debt again, they will pay significantly more - the interest rate will be significantly higher and the outcome of that will be the rise of interest rates, which ultimately puts the consumer under more pressure," Hay says.

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