SA seems set for second Moody’s downgrade in December
The only credit rating agency to still rate SA’s sovereign credit rating above junk, Moody’s, looks likely to give this country a further downgrade in December.
Moody’s, which on June 9 cut SA’s sovereign credit rating to Baa3 with a negative outlook, issued a downbeat commentary on SA’s economic prospects on Monday.
The ratings agency revised its forecast of SA’s economic growth down to 0.8% from 1.1% for 2017 when it issued the credit rating downgrade. Its report — Steep Decline in SA’s Business Confidence is a Setback to Growth Recovery — indicated this lower forecast may still be too optimistic "without improved trust in policymaking".
On June 14, a Rand Merchant Bank (RMB) sponsored business confidence index by Stellenbosch University’s Bureau for Economic Research found business confidence in the second quarter had fallen 11 points to 29, the lowest since 2009.
"Persistently low business confidence reflects the ongoing uncertainty about future political leadership in the ANC and policy priorities of the new leader. Investment will be further delayed and with it a sustainable growth recovery. Real investment in 2016 declined by 3.9%, similar to the drop recorded during the global financial crisis. We expect investment to stagnate at best this year," Moody’s said on Monday.
The credit-negative drop in business confidence follows a March Cabinet reshuffle, which sent mixed signals about policy direction and intentions, and disrupted an emerging partnership between the government, the business sector and labour to support policy stability and investment, the report said.
Moreover, the government has continued to delay the implementation of key structural reforms, another barrier to sectors seeking a stable policy environment for investment.
"Slow growth makes fiscal consolidation increasingly challenging. Strict adherence to expenditure ceilings has been a hallmark of the National Treasury, but falling growth has reduced revenue collection. In the 2017 budget, the public debt-to-GDP ratio is projected to peak next year at 53% of GDP and decline thereafter. This would be a positive turnaround after years of gradual debt accumulation with the ratio of public debt to GDP more than doubling during 2009-16, weakening the government’s fiscal position.
However, this objective is more difficult as growth slows. We project that instead of stabilising, debt to GDP will continue to rise, even after exceeding 55% next year."