Bailouts could lead to ratings downgrade, warns Moody’s

Government bailouts are leading to rising debt, which could ultimately affect South Africa’s credit rating, warned Moody’s in a report. Moody’s is the last ratings agency to give the country investment-grade status.

The report – Moody’s annual Credit Analysis for South Africa, was published on Tuesday. While it doesn’t amount to any change in how the country is rated by the agency, markets are sensitive to any pronouncements made about our economy, with a drop in the rand following the release of the report.

Moody’s senior credit officer Lucie Villa said as part of the analysis that South Africa’s “credit profile would face downward pressure if Moody’s expects that government debt and contingent liabilities risk from SOEs (state-owned enterprises) will continue to rise to levels no longer consistent with a Baa3” – our current rating.

Moody’s added that while our public debt was at a similar level to other countries, this growing government debt coupled with low economic growth was a concern.

The report also said that while interest repayments as a share of revenue in South Africa were high, our sovereign debt carried “relatively low-risk thanks to its rand-denomination and long maturities”.

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Peter Attard Montalto, head of capital markets research at Intellidex, told Reuters: “Today’s report and its contradictory statements will do nothing to assuage increasing disquiet amongst investors about Moody’s rating of South Africa.”

Moody’s has been the ratings agency kindest to South Africa and remains the sole major ratings agency which has not downgraded the country to what is commonly called junk status.

The agency recently made the decision not to make an announcement on SA’s sovereign rating.

This means we stay at our current rating of Baa3 for now, a level up from sub-investment grade, a rating shared by countries such as Russia, Hungary, and Romania.

(Compiled by Daniel Friedman)

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