Ratings agencies could potentially downgrade the country to below investment status sometime this month, predicts global asset management firm Argon Asset Manager economist Thabi Leoka.
Addressing delegates at the SBi Small and Medium-sized Enterprise Indaba in Johannesburg, on Thursday, Leoka noted that ratings agency Moody’s Investors Service would be in the country next week and will be meeting with the South African Treasury to discuss the country’s current rating and a possible downgrade.
“This is an out-of-schedule visit for Moody’s, which means they are obviously very concerned and the possibility of them downgrading us is quite high,” she said.
Moody’s downgraded South Africa to Baa3, one notch above junk, in June, giving the country a negative outlook.
Further, the other two of the three large international ratings agencies, Standard & Poor’s (S&P) Global and Fitch, downgraded South Africa’s foreign-currency rating to speculative grade, or junk status, this year after the economy slowed and the March Cabinet reshuffle.
These ratings downgrades have put pressure on South African asset prices and could increase the country’s borrowing costs.
“The last time we were downgraded was owing to political uncertainty. Moody’s still has us one notch above investment status. If they downgrade us, however, we will be removed from major indices,” said Leoka.
She pointed out that S&P was currently in the country, speaking to various analysts.
She noted that the ratings agency usually spoke to economic analysts and Luthui House. However, this time S&P was focusing its attention on political analysts and would not consult with Luthuli House.
“If they decide to downgrade us, they will do it in November, instead of waiting for February,” she said, adding that companies were divesting from the country, which was evident in the weakening rand.
Touching on the Medium-Term Budget Policy Statement (MTBPS), which was tabled in Parliament by Finance Minister Malusi Gigaba last month, Leoka said that, as long as there was wasteful expenditure, which totals some R50-billion, it would become increasingly difficult for citizens to pay more taxes.
“The shortfall and debt highlighted in the speech are worrying. Refreshingly, Gigaba said the country was in big trouble, however, he did not specify what he intended to do about it,” she said.
Leoka added that it was worrying that there was no clear plan to “take us out of the rut”.