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 

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. But it comes at a cost. Advertisers are cancelling campaigns, and our live events have come to an abrupt halt. Our income has been slashed.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years. We’ve survived thanks to the support of our readers, we will need you to help us get through this.

To help us ensure another 35 future years of fiercely independent journalism, please subscribe.

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

Where is the deputy president?

David Mabuza is hard at work — it’s just not taking place in the public eye. The rumblings and discussion in the ANC are about factions in the ruling party, succession and ousting him

Zuma turns on judiciary as trial nears

Former president says pre-trial correspondence is part of another plot

SANDF inquiry clears soldiers of the death of Collins Khosa

The board of inquiry also found that it was Khosa and his brother-in-law Thabiso Muvhango who caused the altercation with the defence force members

Lockdown relief scheme payouts to employees tops R14-billion

Now employers and employees can apply to the Unemployment Insurance Fund for relief scheme payments

Press Releases

Covid-19 and Back to School Webinar

If our educators can take care of themselves, they can take care of the children they teach

5G technology is the future

Besides a healthcare problem Covid-19 is also a data issue and 5G technology, with its lightning speed, can help to curb its spread

JTI off to court for tobacco ban: Government not listening to industry or consumers

The tobacco ban places 109 000 jobs and 179 000 wholesalers and retailers at risk — including the livelihood of emerging farmers

Holistic Financial Planning for Professionals Webinar

Our lives are constantly in flux, so it makes sense that your financial planning must be reviewed frequently — preferably on an annual basis

Undeterred by Covid-19 pandemic, China and Africa hold hands, building a community of a shared future for mankind

It is clear that building a community with a shared future for all mankind has become a more pressing task than ever before

Wills, Estate Administration and Succession Planning Webinar

Capital Legacy has had no slowdown in lockdown regarding turnaround with clients, in storing or retrieving wills and in answering their questions

Call for Expression of Interest: Training supply and needs assessment to support the energy transition in South Africa

GIZ invites eligible and professional companies with local presence in South Africa to participate in this tender to support the energy transition

Obituary: Mohammed Tikly

His legacy will live on in the vision he shared for a brighter more socially just future, in which racism and discrimination are things of the past

The best local and international journalism

handpicked and in your inbox every weekday