Moody's: 'Low likelihood' of SA downgrade to junk
Ratings agency Moody’s sees a "low likelihood" of a downgrade in South Africa's credit rating, and expects that government debt will stabilise.
The agency's lead analyst for South Africa, Lucie Villa, told a journalist during a meeting in Johannesburg on Tuesday that the country's "stable outlook provided a low likelihood" that its credit rating would change.
South Africa currently has a Baa3 rating, the last step before “junk”, with a stable outlook.
Moody's is the only major credit rating agency that still reckons South African bonds are "investment grade". The two other big ratings agencies, Fitch Ratings and S&P Global, lowered South Africa's credit rating to "junk" in April 2017 after Pravin Gordhan was fired as minister of finance. A “junk” rating means the agency believes there is a bigger chance that government won’t be able to pay back its creditors.
If South Africa lost its investment rate grade rating from Moody’s as well, it would cost the country its place in the most important group of government bonds. The Citigroup’s World Government Bond Index contains only bonds that are investment grade. Many overseas investment funds that are only allowed to invest in investment grade bonds would be forced to sell their South African government bonds.
Bank of America previously estimated that up to R200-billion of South African bonds may be sold off in that scenario. This will lower the value of SA bonds, and make it much more expensive for government to borrow money to keep the country afloat.
After lowering its forecast for SA GDP growth this year to 1% in June, Moody’s now only expects 0.7%. This should pick up to 1.5% in 2020.
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