While a general sigh of relief and commendations circled industry and government following South Africa’s avoidance of a downgrade by ratings agency Moody’s on Friday, BNP Paribas Securities market economist Jeffrey Schultz warned that pressure from fellow ratings firm Standard and Poor’s (S&P’s) for upcoming ratings in June and December would be sustained.

Moody’s surprise – and somewhat favourable – decision to affirm South Africa’s long-term foreign currency rating at two notches above investment grade, at Baa2 with a negative outlook, was “out of kilter” with its peers and riddled with risks, he said.

S&P’s and fellow ratings agency Fitch both held South Africa’s sovereign rating a notch lower at BBB- and one notch above speculative grade credit, S&P’s with a negative outlook and Fitch with a stable outlook, explained Schultz.

In this light, he indicated that Moody’s current rating was “never really going to have any significant bearing” on the currency or fixed-income markets and any optimism was risky, particularly around the outlook for growth and the ability of the government to release itself from the “debt trap” it currently finds itself in, he commented.

Moody’s statement was surprisingly upbeat about the ratings prospects for the country; however, “more critically” for the markets would be S&P’s ratings decision on June 3 given the agency’s current BBB- rating and negative outlook.

While an immediate downgrade by S&P’s was not expected, the agency was expected to highlight its “increasing discomfort” at the lack of meaningful growth-enhancing initiatives in the economy and its concerns over South Africa’s deteriorating debt metrics in recent budgets.

“As a baseline view, we continue to see a better-than-even chance that S&P’s will downgrade the country’s long-term foreign currency rating by one notch to below investment grade (BB+) in December,” he noted.

“While, at this stage, we have done enough to avoid a downgrade by Moody’s, we cannot afford to be complacent,” said Banking Association South Africa MD Cas Coovadia.

With representatives from Fitch and S&P’s heading to South African shores within two weeks, it was now time to convince these ratings agencies that South Africa was on the right track to lay the basis for improved growth in the medium term and that the nation’s institutional strength countered political developments.

“We must sustain the momentum and continue to build on the confidence demonstrated by Moody’s and resolutely address the implementation risks highlighted by Moody’s as the basis of their negative outlook,” Coovadia concluded.