This is as the focus on South Africa’s well-being and possible remedies shifts to the Budget Statement by the Minister for Finance Tito Mboweni in February, which should determine the fiscal policy acrobatics necessary to avoid a downgrade to junk status.
The weak economic environment, a further revenue shortfall and additional funding requirements by state-owned enterprises meant the National Treasury was always going to have to report further fiscal slippage. However, the extent of deterioration announced by Minister Mboweni on October 30 exceeded all expectations.
“Over the next few months, unless the government either implements growth-oriented policies or takes hard decisions to bring down the debt-to-GDP ratio, it is likely that there will be a full downgrade,” said Stanlib’s head of Fixed Income Victor Mphaphuli, noting that after the MTBPS, bond markets and the rand reacted sharply, because it was evident that South Africa ran the risk of a full downgrade from Moody’s.
Chief Economist at Stanlib Kevin Lings agreed that at this stage, the chances of Moody’s downgrading South Africa's credit rating to below investment grade in the first half of 2020 are well above 50 percent, and such a move would indicate that Moody’s sees SA as a greater financial risk than it did in 1994 when giving our first Baa3 rating.