Picture: THINKSTOCK
Picture: THINKSTOCK

Ratings agency Moody’s has warned that SA could face a downgrade if there is any sign of institutions being eroded further, or state-owned enterprises hitting cash crunches and having to call on government guarantees.

Further delays in growth-enhancing reforms could also lead to a downgrade, the agency warned in a regular credit opinion on the South African economy released on Wednesday, as it again flagged SA’s politics as the biggest risk to the rating.

Moody’s, which has SA’s ratings at just one notch above sub-investment and on negative outlook, held back from reviewing SA’s rating on the scheduled date on Friday. But it is due to review the rating again on November 24, after the finance minister presents his medium-term budget in October, but before the ANC’s elective conference in December.

The ratings agencies will watch both events closely.

Analysts expect that Moody’s and Standard &Poor’s, both of which have SA on negative outlook for a downgrade, may wait and see until after the December conference, with SA at risk of a downgrade to its local currency ratings that could trigger capital outflows of at least R80bn.

In its update on Wednesday, Moody’s commented on the recent no-confidence motion in President Jacob Zuma in Parliament, the results of which “reflect the rising political tensions within the ruling party in the run-up to the leadership conference”. It said, however, that the ratings effect of the no-confidence debate was “subdued” because there was no change to weak growth and confidence, the financial situation of state-owned enterprises or the continued uncertainty around policy making.

Moody’s said SA’s political outlook posed downside risks to growth and fiscal strength, and it was “unlikely that a political consensus will emerge which supports investment in the economy and reinvigorates the reform effort sufficiently quickly to reverse the expected negative impact on growth and on the government’s balance sheet”.

The opposite scenario, including heightened political dysfunction, continued gradual institutional weakening and diminished clarity over policy objectives, had a higher likelihood, the agency said.

 

Read Moody's credit opinion in full: 

Moody's credit opinion by Times Media on Scribd

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