Labour unrest in the mining sector has hit where it hurts. So what does South Africa's first credit downgrade in nearly two decades mean?
Moody’s investors service affirmed South Africa’s investment grade credit rating, citing the government’s commitment to fiscal discipline and plans to reduce labour disputes and boost development.
South Africa is rated Baa1, the third lowest investment grade level and on par with Mexico, Thailand and Russia.
Moody’s maintained a negative outlook on the nation’s debt, citing concerns about the outlook for mining, South Africa’s biggest export earner, and increasing pressure on the government to raise spending before next year’s parliamentary elections.
Finance Minister Pravin Gordhan’s “renewed commitment to spending restraint” will stabilise government debt at levels comparable with similarly rated peers, Moody’s said in an e-mailed statement on Wednesday.
“The spending ceiling is now a firmly entrenched anchor for fiscal policy.”
In his February budget speech, Gordhan pledged to cut spending to reduce the budget shortfall, estimated at 4.6% of gross domestic product for the year through March.
Moody’s, Standard & Poor’s and Fitch Ratings have downgraded the nation’s debt since September, concerned by a slowing economy and rising spending pressures. Moody’s and Standard & Poor's have a negative outlook on the rating, indicating they may lower it further.
The government’s adoption of the National Development Plan, which aims to reduce poverty and inequality, and the ruling ANC’s rejection of calls to nationalise mines supported South Africa’s rating, Moody’s said.
A framework agreement between government, labour unions and mining companies may reduce labour disputes in the industry and lead to more investment and growth, it added. – Bloomberg