SA's Plans To Curb Debt: Ratings Agencies Give Us Benefit Of The Doubt

Further credit rating downgrades are unlikely ahead of the Treasury’s February budget, when it will be more clear if economic revival strategies will work.

- Mariam Isa

South Africa’s financial markets may have wobbled in response to the bad news in Treasury’s medium-term budget policy statement (MTBPS) last month, but South Africans run the risk once again of seeing their glass as half empty rather than half full.

The fact is that for the next few months the country will avoid a downgrade from Moody’s Investors Service — the only agency to still have an investment-grade credit rating for SA — despite significant deterioration in official forecasts for budget deficits and debt ratios, both to concerning levels.

Moody’s took the bad news in its stride, saying in an issuers note a few days later that although the MTBPS was “a credit negative”, the risks to Treasury’s latest fiscal projections were “balanced” and its tax collection assumptions were achievable.

This means that unless there are unexpected political or economic shocks, Moody’s is on track to keep its sovereign rating for SA — together with a stable outlook — unchanged until the country’s 2019 budget in February, when it will be clear whether Treasury has managed to meet, and perhaps even exceed, its latest targets.

It also means that until then, the country will avoid the downgrade which would knock its government bonds out of the Citigroup World Bond Index, triggering damaging outflows of the foreign capital invested in domestic bonds and equities and putting further pressure on the depreciating rand.