CAPE TOWN – Rating agency Moody’s Investors Services did not release it ratings statement on Friday, which was widely extected to retain South Africa’s investment grade status.
The market has been keeping close watch of potential changes to the creditworthiness of the country’s sovereign with the rand standing its groud against the dollar boosted by the sentiment linked to former SA Reserve Bank Governor Tito Mboweni’s appointmment as Finance Minister.
Intellidex UK’s head of capital markets research, Peter Attard Montalto, said in a research report that the mixture of a new Finance Minister and pre-Medium-term Budget Policy Statement (MTBPS) timing always meant it was unlikely the rating agency could move without major new news.
According to Investment.com rating agencies will likely look out for three priority areas that could trigger changes to the country’s credit rating:
- Continued commitment to fiscal consolidation
- Reform in state-owned enterprises
- Focus on economic growth
No new date was immediately available from Moody’s but Montalto said he suspected it would be the second half of November or early December if it occurs this year – or else March next year. “Today was always a very odd choice of ratings date given that the MTBPS has always been the same date at the end of October for so long.”
He said Moody’s was expected to keep ratings unchanged this year and only downgrade the outlook after next year’s budget. “Downgrading the rating level before the elections however is hard given we expect Moody’s to still continue its form of liberally applying too much benefit of the doubt around growth positive reforms to come.
“Yet Moody’s is on track in the long run to cut into junk in our view as it is slowly abandoning the long run view that debt to GDP will fall with growth boosting reforms. Pencilling in such a date remains hard and looks most likely after the 2019 MTBPS when a mixture of political infighting, lack of reform and further budget slippage all come to a head.
“Of course it is possible to think of accelerated timelines from that on: Eskom or other SOEs suffering major distress and coming on balance sheet, major additional downside growth shocks, abandoning the expenditure ceiling under political pressure etc. However a more drawn out timeline for Moody’s does for now make most sense especially given we see National Treasury resisting huge political pressure into next year’s budget (and at this MTBPS) to abandon the expenditure ceiling – even if there is ‘normal’ slippage at that time,” said Montalto.