South Africa’s credit rating was well placed at the lowest investment grade, but rising foreign ownership of the government’s local currency bonds was a risk, a senior analyst at Moody’s ratings agency says.
Moody’s downgraded South Africa to “Baa3”, one notch above junk, in June and has the continent’s most industrialised economy on a negative outlook.
“We think South Africa is well placed at Baa3 with a negative outlook. We had a rating action fairly recently in June,” Zuzana Brixiova, a Moody’s vice-president, said at an investor conference in London.
However, she said that since the June downgrade, she had observed a larger-than-expected shortfall in South African government revenues and an increase in foreign financing of government borrowing in rand to around 40%.
“To some extent the risk of a ‘sudden stop’ has increased,” she said, referring to the risk that an abrupt change in investor sentiment could result in a sharp reduction in capital flows into South Africa.
Among other concerns, Brixiova cited weak economic growth in South Africa and pressure on institutions, which she said “were being constantly tested”.
She said that whoever the ANC chooses as its next leader at a major conference in December, Moody’s “would wait and follow what this really means for the policy direction”.