CAPE TOWN - As South Africa desperately attempts to recover from junk status (BB+), the country is facing yet another credit rating scare, expected to be revealed on Friday by global ratings agencies S&P and Moody’s.
The anticipated credit ratings judgement will be decided tomorrow, after a prior hiccup by Moody’s in August this year.
On August 11, Moody’s refused to release a ratings review on South Africa. The ratings agency later blew steam on August 17 by warning that continued bailouts of state-owned companies (SOEs) could threaten the country’s future credit outlook.
As economists and the world above gear up for tomorrow’s judgement, Chief Economist at Investec, Annabel Bishop tell what she expects from the judgement.
"We expect a Moody’s downgrade to Ba1 on the foreign (and so local) currency front on 24th November. S&P is yet to give commentary post the MTBPS, but the risk is that it joins Moody’s on the 24th", said Bishop.
She added that she expects “some rand weakness and higher bond yields, with weaker GDP growth as per the expected case”.
"The rand could move by about 5%," said Bishop.
This will be damaging to the country’s economic realm.
South Africa’s conundrum is devastating for the economy as it affects direct foreign investment and
Finance Minister, Malusi Gigaba has gone out on a limb to ensure that South Africa does not receive its fourth junk status from S&P since the inception of democracy.
Gigaba reportedly met with S&P to reassure international ratings agencies.
Although Gigaba also reassured the country in his Medium Term Budget Policy Statement (MTBPS) that he would drive inclusive growth and fiscal consolidation.
Despite this, Moody’s said the October 2017 MTBPS was “a marked credit-negative departure from earlier fiscal consolidation efforts” .
"SA could lose all its remaining investment grade credit ratings by the end of the first half of next year, post the 2018 Budget, again with some rand weakness, higher yields and weak GDP growth", concluded Bishop.
- BUSINESS REPORT ONLINE