SA’s credit rating could be upgraded if it implements structural reforms to raise economic growth and stabilise the nation’s debt burden, Moody’s says.
South Africa expects Moody’s to release its ratings review after next week’s medium term budget policy statement (MTBPS), Dondo Mogajane, the director general of the National Treasury said on Tuesday.
Mogajane said he met Moody’s representatives at an international financial conference in Bali last week and told Reuters that the ratings agency “will obviously get back to us after the MTBPS.”
Moody’s also said it expected the new South African Finance Minister Tito Mboweni to keep the government’s broad policies intact in the medium-term budget speech due next week.
Lucie Villa, Moody’s lead analyst for South Africa said in a research report that while the change in ministers “may lead to last moment changes in policy implementation, we would not expect the broad direction of policy to be dependent on individuals.”
Moody’s, the last of the top three agencies to still rate the country investment grade, did not publish the review on Friday as was widely expected.
SA could see rating uptick on reforms, Moody’s says
South Africa could see its credit rating upgraded if it successfully implements structural reforms that would raise economic growth and stabilise the nation’s debt burden, Moody’s Investors Service said.
Reforms to state-owned companies that reduce contingent liabilities would exert upward pressure on ratings, Lucie Villa, a vice president and senior credit officer who’s the lead analyst for South Africa at Moody’s, said in a research report Tuesday. Conversely, the assessment would be cut if the state doesn’t stabilise debt and liabilities, she wrote.
Ratings companies have flagged state firms’ finances as a concern in recent years.
Optimism following President Cyril Ramaphosa’s ascent to power since December after Jacob Zuma’s corruption-plagued tenure of almost nine years has faded somewhat as structural reforms weren’t implemented fast enough.
Government guarantees to state companies are at more than R450 billion ($32 billion), according to data from the National Treasury. The state’s exposure to this increased to 64.5% in the past fiscal year from 54.4% as companies drew on the guarantees.
The economy is struggling to emerge from a first-half recession. Last year, a widening fiscal deficit and slower economic growth projections led S&P Global Ratings and Fitch Ratings to strip the country of its investment rating, sending yields skyrocketing and the rand weaker.
SourcePublish Date: October 16, 2018 | Source: MoneyWeb | Author: Reuters and Bloomberg