Moody’s Investors Service downgraded South Africa’s rating to Baa3 on Friday, and assigned a negative outlook.
Moody’s also downgraded the government’s senior unsecured short-term program rating to (P)P-3 from (P)P-2. The rating actions conclude the review for downgrade that commenced on April 3.
“The key drivers for the downgrade are the weakening of South Africa’s institutional framework; reduced growth prospects reflecting policy uncertainty and slower progress with structural reforms; and the continued erosion of fiscal strength due to rising public debt and contingent liabilities,” Moody’s said in a statement.
“The Baa3 rating recognises a number of important strengths that continue to support South Africa’s creditworthiness. However, the negative outlook reflects the continued downside risks for growth and fiscal consolidation associated with the political outlook.”
Moody’s added that over the medium-term, economic and fiscal strength would remain sensitive to investor confidence and uncertainty surrounding political developments, “including prospects for structural reforms intended to raise potential growth and flexibility in fiscal expenditures”.
In a related decision, Moody’s also downgraded to Baa3 from Baa2 the backed senior unsecured debt issued by ZAR Sovereign Capital Fund Propriety Limited, a special purpose vehicle whose debt issuance is ultimately the obligation of the South African government, and assigned a negative outlook.
“South Africa’s long-term local-currency bond and deposit ceilings were lowered to A2 from A1, and the long-term and short-term foreign-currency bond ceilings lowered to A3/P-2 from A2/P-1, respectively,” Moody’s said.
“The long-term foreign-currency bank deposits ceilings was lowered to Baa3 from Baa2, while the short-term foreign-currency bank deposits ceiling was lowered to P-3 from P-2.”
Moody’s said that the downgrade reflected its view that the recent political developments suggest a weakening of the country’s institutional strength, which casts doubt over the strength and stability of the recovery in growth and stabilisation of the debt-to-GDP ratio over the near-term.
– African News Agency (ANA)