Moody’s could hold decision on SA downgrade — for now

South Africa enters into a 21-day lockdown period in the face of a global pandemic, an economy in recession and a possible downgrade by rating’s agency Moody’s.

Most businesses will close and citizens will largely be confined to their homes as the country grapples with the spread of the coronavirus. This will bring South Africa’s already ailing economy to a standstill. 

Moody’s is still scheduled to announce its decision at the end of the week. The ratings agency is the last of the big three ratings agencies — Moody’s, Fitch and S&P Global — to keep the country’s credit rating as stable. 

So far, the country has avoided a downgrade by Moody’s despite high public debt, weak economic growth and lower than expected tax collection. In its last review of South Africa’s creditworthiness, Moody’s downgraded the country’s sovereign rating to negative from stable and put it on notice for a downgrade to junk. 

The economic shock of Covid-19 however could change that. The virus will negatively affect global and domestic economic growth through the first half of the year, and potentially longer depending on the steps taken to limit its spread. 


Following the presentation of the national budget in February — which showed that the country’s borrowing costs will increase to up to 70% of gross domestic product over the medium term — the market had already begun to anticipate a downgrade from Moody’s this month. 

Kabelo Tshola, a portfolio manager at FNB Wealth and Investments, said however that the ratings agency may well give the country “the benefit of the doubt and suspend the review until the second half of the year”. 

Similar to other governments across the world, the South African government’s first priority is  addressing the looming public health crisis. But with the sharp decline in economic activity, the government has also announced measures aimed at protecting business and households. 

The national treasury says the funding for the containment of the virus and the economic consequences of a three-week lockdown will come from a re-prioritisation of the national budget. Tshola says this is key to the government delivering on it promises to cut costs where it can. 

“This will be difficult in a situation where spending is required to support the economy through this outbreak. It is also highly unlikely that the revenue authorities will achieve their targets for this year,” he says. 

In November, Moody’s flagged loadshedding, government debt inequality and slow economic growth as among the risk factors that could lead to the country being downgraded. Since then, those risk factors have materialised and are likely to be exacerbated by the economic downturn as a result of Covid-19. 

Also increasing the risk of a downgrade is the stalemate between the public sector unions and government around the 9% wage increase for the next three years. 

Sifiso Skenjana, the chief economist at IQ Business, said Moody’s might use a “wait and see” approach to revising South Africa’s credit rating “until this [Covid-19] anomaly has passed”. 

If downgraded, South Africa would be excluded from the FTSE World Government Bond Index, which would force some institutions that have not already sold off the country’s debt to do so. This could lead to an increase in already high borrowing costs.

“We are facing weak growth and weak budget numbers,” said Matete Thulare, a business analyst at Rand Merchant Bank, who added that it was not likely that the 21-day lockdown would stop Moody’s from announcing its decision. “Chances are they are going to put us under review. This gives us a three-month window to get our house in order, he said. “But anything is possible at this point.” 

Thando Maeko is an Adamela Trust business reporter at the Mail & Guardian 

Subscribe to the M&G

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years, and we’ve survived right from day one thanks to the support of readers who value fiercely independent journalism that is beholden to no-one. To help us continue for another 35 future years with the same proud values, please consider taking out a subscription.

Thando Maeko
Thando Maeko is an Adamela Trust business reporter at the Mail & Guardian

Related stories

KZN officials cash in on ‘danger pay for Covid-19’

Leadership failures at Umdoni local municipality in KwaZulu-Natal have caused a ‘very unhappy’ ANC PEC to fire the mayor and chief whip

The high road is in harm reduction

While the restriction of movement curtailed the health services for people who use drugs in some parts of the world, it propelled other countries into finding innovative ways to continue services, a new report reveals

South Africa must revisit and refresh its idea of itself

Covid has propelled citizens into feelings of a new shared identity in which the historical force of ‘whiteness’ is fading into irrelevance

How to escape the ‘era of pandemics’

Any of 850 000 viruses could cause the next global crisis. Experts say we should focus on prevention

Air pollution link in 15% of global Covid-19 deaths

Researchers have found that, because ambient fine particulate air pollution aggravates comorbidities, it could play a factor in coronavirus fatalities

SAA to receive R10.5-billion government bailout after all

Several struggling state-owned entities received extra funds after the medium term budget policy speech
Advertising

Subscribers only

The shame of 40 000 missing education certificates

Graduates are being left in the lurch by a higher education department that is simply unable to deliver the crucial certificates proving their qualifications - in some cases dating back to 1992

The living nightmare of environmental activists who protest mine expansion

Last week Fikile Ntshangase was gunned down as activists fight mining company Tendele’s expansions. Community members tell the M&G about the ‘kill lists’ and the dread they live with every day

More top stories

Fifteen witnesses for vice-chancellor probe

Sefako Makgatho University vice-chancellor Professor Peter Mbati had interdicted parliament last month from continuing with the inquiry

Constitutional Court ruling on restructuring dispute is good for employers

A judgment from the apex court empowers employers to change their workers’ contracts — without consultation

Audi Q8: Perfectly cool

The Audi Q8 is designed to be the king in the elite SUV class. But is it a victim of its own success?

KZN officials cash in on ‘danger pay for Covid-19’

Leadership failures at Umdoni local municipality in KwaZulu-Natal have caused a ‘very unhappy’ ANC PEC to fire the mayor and chief whip
Advertising

press releases

Loading latest Press Releases…

The best local and international journalism

handpicked and in your inbox every weekday