‘Weak state entities a risk to SA’s credit rating’ — Moody’s

South Africa’s credit rating would be downgraded if state owned enterprises (SOEs) raise government’s debt burden, Moody’s warned.

The rating agency on Tuesday released a research report on the government. 

Moody’s has rated South Africa at Baa3, one rung above junk status, with a stable outlook. The rating agency was scheduled to issue a rating action last Friday, but did not which meant the rand remained resilient strengthened on Monday following the delayed rating decision.

According to the report, the challenges to the country’s credit include weak SOEs, structural economic bottlenecks which are limiting growth and job creation as well as policy uncertainty stemming from “social and political divisions”.

Moody’s indicated that South Africa’s ratings would be downgraded if prospects to revive growth falter, if government cannot stabilise its debt burden and contingent liabilities from SOEs.

“Any crystallisation of contingent liability from SOEs that would raise the government debt burden and place it on a higher trajectory would likely have negative rating implications,” the report read.

“Credit constraints include elevated government debt and contingent liabilities risks from state-owned enterprises, which limit the capacity of the government to absorb potential shocks or use fiscal stimuli, as well as persistently low growth,” Moody’s explained.

In turn Moody’s highlighted credit strengths, which include South Africa’s core institutions such as the judiciary and the South African Reserve Bank, a well-capitalised banking sector and “relatively deep” financial markets. Another strength is the low share of foreign currency debt.

An upgrade would be possible through the implementation of structural reforms to raise growth, stabilise and reduce government’s debt, as well as reforms at SOEs to reduce contingent liabilities, Moody’s said.

Moody’s unpacked the structural challenges to growth – which include limited flexibility in labour and product markets, skills shortages, regulatory uncertainty in the mining sector, the lack of competition in network sectors and the weak governance of SOEs.

The economic growth which has been slower than expected creates policy challenges, Moody’s noted. The rating agency projects growth of 0.5% for 2018 and 1.3% in 2019.

Mini budget

Moody’s believes government can bring down the deficit from 4.3% to 3.5% of GDP by the year 2020/21. Debt would be at 56% of GDP. “Our fiscal deficit forecast already assumes a fair amount of adjustments from the government, the details of which will be published in the government medium-term budget policy statement (mini budget), on 24 October 2018,” Moody’s said.

The rating agency said that the appointment of Tito Mboweni as finance minister could lead to moment changes in policy implementation. “We would not expect the broad direction of policy to be dependent on individuals, in particular given that institutions in South Africa have proven resilient to challenges in recent years,” Mboweni said. — Fin 24

Lameez Omarjee
Lameez Omarjee
Parliamentary reporter at Fin24.com
Advertisting

Salie-Hlophe accuses Goliath of lying and racism

In response to Goliath’s gross misconduct complaint, Salie-Hlophe says Goliath has ‘an unhealthy obsession with my marriage’

Treasury is still seeking SAA funds

The government has committed an additional R2-billion to the airline, but has yet to pay it out

‘There were no marks on his neck’, Neil Aggett inquest...

The trade unionist’s partner at the time he was detained at John Vorster Square says she now believes his death was not a suicide
Advertising

Press Releases

Boosting safety for cargo and drivers

The use of a telematics system for fleet vehicles has proved to be an important tool in helping to drive down costs and improve efficiency, says MiX Telematics Africa.

Silencing the guns and firearms amnesty

Silencing the guns and firearms amnesty

Gender-based violence is an affront to our humanity

Gender-based violence is an affront to our humanity

UK-Africa investment summit 2020: Think Africa Invest SA

UK-Africa investment summit 2020: Think Africa Invest SA

MTN unveils TikTok bundles

Customised MTN TikTok data bundles are available to all prepaid customers on *136*2#.

Marketers need to reinvent themselves

Marketing is an exciting discipline, offering the perfect fit for individuals who are equally interested in business, human dynamics and strategic thinking. But the...

Upskill yourself to land your dream job in 2020

If you received admission to an IIE Higher Certificate qualification, once you have graduated, you can articulate to an IIE Diploma and then IIE Bachelor's degree at IIE Rosebank College.

South Africans unsure of what to expect in 2020

Almost half (49%) of South Africans, 15 years and older, agree or strongly agree that they view 2020 with optimism.