Moody's warns of downgrade unless Ramaphosa makes good on reform promises
Just a week after the ANC's victory in the election, credit rating agency Moody's Investors Service said it expects the government to move forward with policies that tackle SA's credit challenges.
"With the election over, we expect SA's new government, when formed, will put forward policies to continue tackling the country's main credit challenges — low growth, steadily rising debt, leveraged state-owned enterprises and weakened institutions," Moody's lead sovereign analyst Lucie Villa said in a report released on Wednesday evening.
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Villa said the new cabinet will need to raise growth, reverse SA's rising debt trajectory and rebuild its institutions "following the years of misgovernance by the Zuma administrations".
"We expect that the government will continue to pursue greater control of corruption or 'state capture' and reform policy, which will support a gradual recovery in growth," she said, adding that reform measures include easing visa regulations and reducing barriers to entry for companies through the enforceability phase of the Competition Amendment Act.
Lead sovereign analyst for Moody’s SA, Lucie Villa, joins Business Day TV to discuss the ratings agency's view on how SA can avoid a downgrade.
Villa warned that SA's credit profile will likely continue to deteriorate in the absence of effective policy changes in the context of weakening fiscal strength and low growth.
"Fading prospects of policies that will sustain fiscal and economic strength, alongside any signs of diminishing resilience to shocks, would put downward pressure on the country's rating," Villa said.
This comes on the same day that Ramaphosa said he will reconfigure the cabinet to propel the economy at a Goldman Sachs conference in Johannesburg.
The report does not constitute a ratings action. SA had a reprieve at the end of March when Moody’s did not make a pronouncement on the country’s ratings.
Moody's is the only major ratings agency that has not downgraded SA’s sovereign debt to subinvestment level. SA’s debt is rated at Baa3 by the agency, one notch above junk status, with a stable outlook.
The ratings agency's next scheduled announcement is November 1.