Moody’s Sees South Africa’s Credit Rating Outlook as Stable

JOHANNESBURG (Capital Markets in Africa) – Moody’s Investors Service said South Africa’s credit-rating outlook is stable, giving the country’s new government more time to tackle key challenges such as low economic growth and embattled state-owned companies to ward off junk status.

With May’s national elections over, the new government “will put forward policies to continue tackling the main credit challenges, including a low growth, steadily rising debt, leveraged state-owned enterprises and weakened institutions,” Moody’s said. “South Africa has strengths including a favorable government debt structure and a large pool of domestic investors that insulate its credit profile from shocks.”

President Cyril Ramaphosa appointed a slimmed-down cabinet that retained Finance Minister Tito Mboweni and Public Enterprises Minister Pravin Gordhan in their posts after the ruling African National Congress won elections in May and extended it’s 25-year grip on power.

The country’s economy contracted the most in a decade in the first quarter as the nation suffered the deepest power outages since 2008. Ramphosa met the board of the country’s cash-strapped power producer Eskom Holdings SOC Ltd. on Tuesday and will announce further measures to support the embattled utility, his office said.

South Africa’s rating will likely be downgraded to junk status if the prospect of policies to halt the gradual erosion in fiscal and economic strength were to fade, Moody’s added.

Moody’s, which rates South Africa’s credit at Baa3 — the lowest investment grade — sees the country’s economy expanding 1% this year and 1.5% in 2020, it said.

The rand declined for the first time in five days, falling 0.3% to 14.5638 per dollar at 8:08 a.m. in Johannesburg.

Source: Bloomberg Business News