SA escapes third junk status rating.
- Frederik Herholdt
- Mar 25, 2018
- 2 min read
South Africa escaped a third junk status rating as an assessment of the nation’s debt by Moody's Investor Service is left unchanged, the assessment in fact cites more transparent and predictable policies under President Cyril Ramaphosa.
The African nation's outlook was adjusted from negative to stable after revision. This means a boosted sentiment and most probably good support the rand. The rand showed some significant good change after Cyril Ramaphosa took over as leader of the ruling African National Congress in December and became president last month. Some articles stated that "the rand cheered Zuma out of office".
The local-currency rating remains investment grade, and the nation is doing its best to avoid being excluded from global benchmark indexes that could lead outflows of as much as 100 billion rand, which calculates to $8.4 billion. Moody's said in a statement on Friday that the nations local- and foreign-currency assessments is maintained at Baa3, the lowest investment-grade level. This keeps South Africa on the same level as that of Indonesia and Romania.
"The recent change in political leadership appears to have halted the gradual erosion of the strength of South Africa’s institutions,” Moody’s analysts Zuzana Brixiova and Marie Diron wrote in the statement. Article continues after competition ad below.
Economic growth in Africa's most-industrialised exceeded government's forecast for 2017, but it has been below 2% since 2014. Nhlanhla Nene, reappointed Finance Minister of South Africa, said the National Treasury may raise its projected 1.5 percent growth forecast for 2018. The National Treasury said it’s working to provide policy certainty on issues such as mining legislation.
“This places us in purgatory, so we aren’t going to heaven and we aren’t going to hell either,” an independent economist, Thabi Leoka, in Johannesburg, said prior to the announcement. “We still have very low growth over the next two years and we still have a revenue shortfall, while already surpassing the spending ceiling and we need to fix all of those, quite significantly, before we we can actually be in a comfortable position regarding our rating.”
Fitch Ratings Ltd. affirmed the country’s debt scores at its highest non-investment grade in November with a stable outlook, while S&P Global Ratings lowered the nation’s rand debt to junk and cut the foreign-currency assessment to two levels below investment grade. S&P is scheduled to make a ratings announcement on May 25.
The rand led gains among the world’s major peers in the week ended Friday, climbing almost 2 percent against the U.S. dollar on speculation South Africa would avert a downgrade. The currency has risen more than 5 percent this year.
Posted 25 March 2018 | Frederik Herholdt
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