Moody's signage is displayed outside of the company's headquarters in New York. Picture: BLOOMBERG/ GETTY IMAGES/ RAMIN TALAIE
Moody's signage is displayed outside of the company's headquarters in New York. Picture: BLOOMBERG/ GETTY IMAGES/ RAMIN TALAIE

While the outlook for global sovereign creditworthiness in 2019 is stable, weak emerging markets such as SA could face greater risks, ratings agency Moody’s Investors Service has warned.

The sovereign credit ratings of countries around the world face rising external challenges such as tightening global financial conditions, shifting capital flows, higher oil prices and disruptions to trade flows, Moody’s said in a report on Tuesday.

“Key fundamentals — growth prospects, indebtedness, domestic and external imbalances, and institutional strength including the capacity and credibility of policy makers — will determine individual sovereigns’ resilience to these shocks,” reads the report.

In the report, Moody’s said that SA, along with Turkey, Argentina and Brazil, is in the limelight because of varying combinations of external exposure, weak institutions, unpredictable domestic politics and geopolitical risk.

“Among the sovereigns most directly affected by the recent volatility in international capital and foreign exchange markets, SA holds an investment-grade rating,” said Moody’s.

The ratings agency is the last of the big three international agencies to have SA's long-term foreign-currency debt at investment grade.

“SA's vulnerability similarly reflects high reliance on external capital, though mainly denominated in local currency, set against a context of a moribund economy, high inequality and political stasis ahead of the 2019 presidential elections,” the report states, adding that SA faces below-trend growth.

According to the report, 104, or 75%, of the 138 Moody's-rated countries with sovereign ratings currently have a stable outlook and 15 (11%) hold a positive outlook; 19 (14%) sovereigns have a negative outlook compared with 22 (16%) a year ago and as many as 35 (26%) two years ago

“The potential for disruptive domestic or geopolitical events poses the greatest tail risk to the current constellation of sovereign ratings,” said Moody’s, warning that weak emerging markets could face greater risks.

While the credit ratings agency did not make a decision as scheduled in October, an unfavourable statement following the medium-term budget policy statement, which was seen as credit negative, has renewed fears that SA could be downgraded by Moody's. However, although it remains to be seen when the Moody's will make a decision.