South Africa’s current credit rating has been confirmed, as Moody’s Investors Service kept the government bond long and short-term ratings unchanged at Baa2 and P-2 respectively, while assigning a negative outlook.
Moody’s is the only solicited rating agency that assigns the same rating for both the domestic and foreign currency denominated debt, Baa2 – a rating that is two notches above sub-investment grade.
The confirmation of South Africa’s investment grade credit rating marks an end to the evaluation period that started on 8 March 2016, when Moody’s placed the country’s ratings under review for possible downgrade.
On Saturday, the National Treasury released a statement outlining the three reasons Moody’s affirmed the ratings.
1. South Africa’s economic growth will start recovering after 2016, having reached its trough this year.
“Government will continue to collaborate with business, labour and civil society to restore confidence in the economy and address the structural constraints to economic growth,” Treasury said in the statement.
It said the National Development Plan remains the catalyst for growth. The Nine-Point Plan will ensure its milestones are achieved. These include:
- promoting a stable and cooperative labour relations environment
- encouraging development of energy efficient, job-creating industries
- lowering the cost of doing business, removing regulatory constraints and acting swiftly to remove policy uncertainty
- boosting investment through launching Invest SA
- implementing reforms to ensure that state-owned companies are financially sound, operate efficiently, are well-managed and properly governed
2. The adoption of more aggressive consolidation measures in the 2016 Budget will increase the likelihood that general government debt to gross domestic product (GDP) will stabilise in the current year.
Treasury said the government’s decision to implement fiscal consolidation to return public finances to a sustainable path, while protecting core social and economic programmes, was correct.
“This was done through tax policy adjustments to boost revenue, moderate current expenditure and reprioritised budgets. Furthermore, government’s recent track record of achieving fiscal targets gives credence to the future fiscal plans, especially maintaining an expenditure ceiling and recapitalising state-owned companies in a budget neutral manner.”
3. According to Moody’s, the recent political developments are testament to South Africa’s institutional strength, compared to its peers.
Treasury said South Africa’s monetary and fiscal institutions have remained sound over time.
“Despite adverse political developments in recent months, government continues to demonstrate determination to bring public finances under control and ensure that programmes such as nuclear and the National Health Insurance are financed at a scale and pace that is affordable.”
Moody’s warned of the need to implement the structural and legislative reforms agreed to by the government, business and labour. The rating agency said the future trajectory of the rating will be “highly dependent on government’s success in enhancing medium term growth prospects, stabilising debt and restoring investor confidence.”
It said the country’s outlook can be changed from negative to stable if the government delivers on commitments that support growth and achieve fiscal targets.
South Africa’s government, meanwhile, is intensifying efforts and focus on inclusive economic growth, job creation and improving investor confidence through addressing structural constraints.
“Collectively working with business, civil society and labour, government will continue to demonstrate its commitment to translate plans into concrete actions that will ensure South Africa remains an investment grade country,” Treasury said.
Ramaphosa welcomes rating
Deputy President Cyril Ramaphosa has welcomed Moody’s decision. He was in Mbizana in the Eastern Cape when he responded to the credit rating on South Africa.
“We are very pleased with Moody’s report, where they have kept our rating status as is. Many people were thinking that they would downgrade us. They haven’t and that is a great success for us because it shows what we can achieve when we work together.
“We have to congratulate Treasury for having led the charge working together . with other organisations, trade unions, business and civil society. It was very pleasing to see them travel to investors overseas as a united team, essentially as Team South Africa, going to sell South Africa and explain everything about our country.
“So it’s great news and great success. As South Africans, we can congratulate ourselves.”
Ramaphosa cautioned, however, that the country should not relax.
“It is not over yet because there is another rating that is coming and this is when we must work harder and unite and demonstrate that South Africa is solid, stable and a worthy investment destination.”