MOODY’S is the only one of the three big rating agencies to maintain the country's rand-denominated debt at investment-grade level. Reuters
JOHANNESBURG – Moody's Investor Services on Friday left South Africa sovereign ratings unchanged at Baa3, the last rung of investment grade, with a stable outlook in a move largely seen to give government time to implement Cyril Ramaphosa’s reform plan post May's elections.

The rating agency was expected to give South Africa a negative outlook following February's Budget, which showed a deterioration of public finances and Eskom’s mounting financial and operational challenges.

However, Moody’s surprisingly did not give a rating update as scheduled and provided no reasons for the decision not to update the assessment.

Jabu Mabuza, co-convener of the CEO Initiative, said the decision by Moody’s provides the government and its partners with a final opportunity - before the next ratings review - to implement the vital structural reforms.

“Particular attention needs to be given to rectifying the deterioration in the country's fiscal position that was communicated in the Budget speech last month,” said Mabuza.

“We acknowledge the government's proposals to rein-in public expenditure, but emphasise that these measures need to be implemented with the utmost urgency to prevent further negative implications for our ratings outlook at the next review.”

The ruling ANC is bracing itself for its toughest elections since the dawn of democracy, especially in the economic heartland of Gauteng where opposition parties made serious inroads in the 2016 local government ballot.

North West University Business School economist Professor Raymond Parsons said the economy is not yet out of the woods and Moody’s decision should be seen as a stay of execution, rather than as a reprieve.

“After the May election Moody’s and other credit rating agencies will presumably want more clarity and certainty on key issues such as likely policy changes, a new Cabinet, and SA's future economic direction. The Moody’s update remains pending the latest economic and political developments,” Parsons said.

Moody’s is the only one of the three big rating agencies to maintain the country's rand-denominated debt at investment-grade level. Moody’s has in the past few years been accommodative to South Africa, unlike its peers Fitch Ratings and Standard and Poor’s, who both downgraded the country to junk status in 2017.

A downgrade by Moody’s would result in South Africa's government debt being excluded from the World Government Bond Index, leading to capital outflows.

Moody’s in February said that until the government provides a clear and detailed plan of how Eskom will be restructured, the cash burning power utility will continue to overshadow the country's public finances.

Peter Attard Montalto, head of capital markets research at Intellidex, said Moody’s indecision was bad for sentiment in South Africa as the dagger still hangs over the economy with no new sense of how close to the edge things are with an update.

“We view this as a further signal of the huge risk aversion within Moody’s at taking any kind of long-term, reasoned view of where the economy and credit risk is going, a view of continual mean reversion on things like load shedding (not seeing its impact on long-term growth) and not being able to pass critical judgment over reform promises or the Eskom plan,” Montalto said.