May 23, 2018

South Africa to outline "decisive" policy in 2018 after debt rating cut

26 November 2017, 01:08 | Kenneth Drake

Departure lounge at OR Tambo International Airport near Johannesburg

Departure lounge at OR Tambo International Airport near Johannesburg

This news is hardly encouraging, as South Africa's largest businesses have been in negotiations with the government of President Jacob Zuma since March, when the President replaced Finance Minister Pravin Gordhan with Gigaba.

A "junk status" ratings has implications for the economy, state debt costs, state owned companies and the ordinary man on the street. This as the nation's economy is struggling amidst the low global commodity prices and economic mismanagement and sweeping corruption at home.

Moody's said the decision to place the rating on review for downgrade was prompted by a series of recent developments, which suggest that South Africa's economic and fiscal challenges are more pronounced than Moody's had previously assumed.

It said the reprieve could not see South Africa become complacent, and it should remembered that Fitch's decision in April to downgrade the country to "junk" status contributed to a recession, a decrease in revenue and higher borrowing costs.

The poor performance of South African Rand (ZAR) exchange rates can be attributed to political turmoil within the region, which has stalled economic reform for South Africa for some time.

Andrew Golding Chief Executive of the Pam Golding Property group shared this sentiment, stating: "As things stand, political uncertainty is likely to delay further rate cuts for the foreseeable future and the economic situation is in somewhat of a "holding pattern" until the ANC elective conference".

Treasury added that concluding critical policies remains pivotal for creating certainty, particularly in terms of restoring confidence.

The agency will only complete its review after the 2018 budget.

"Two of the three major ratings agencies now have South Africa's foreign and local currency government debt classified as so-called "junk" with only Moody's retaining their local currency rating at the lowest level of investment grade, and placing the country's credit on review for a downgrade", it said.

Ratings firm Fitch kept both South Africa's local and foreign currency credit ratings unchanged at BB+, one notch below investment grade, with a stable outlook, the agency said on Thursday. But this has now also been downgraded to non-investment grade.

South African debt has already been dropped from one of the widely used global bond indexes, the JPMorgan Emerging Market Bond Index Global according to Matthews.

"This is a positive development and is reflective of South Africa's deep and liquid domestic bond market".

It is to provide more information in a budget that is scheduled to be released in February.

Zuma is accused of enriching a new corrupt elite rather than helping the poverty-stricken black majority.

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