Moody’s holds off on ratings announcement on SA’s creditworthiness
Ratings agency adopts a wait-and-see approach, with a report now only likely after the general election on May 8
Moody’s Investors Service surprised the market early on Saturday morning when it decided not to release a report on SA’s sovereign credit rating.
Although the credit rating agency was scheduled to make an announcement, it can delay releasing a report, and then make a move on an unspecified date, as it did in October 2018.
SA’s debt with the agency is currently rated at Baa3, one notch above junk status, with a stable outlook.
“The surprise decision by Moody's not to update SA's sovereign credit rating at this stage is welcome, as it gives the country further breathing space to get its economic and fiscal house in order,” North West University Business School economist Raymond Parsons.
Analysts were divided on what action Moody’s would take. Half the participants in a Bloomberg survey expected it to maintain a stable outlook on its local and foreign currency debt, with the remainder predicting a reduction to negative. Those who did not foresee a change say Moody’s may adopt a wait-and-see approach until after the May 8 general election.
Intellidex’s head of capital markets research Peter Attard Montalto said of the news: “SA has been denied its cathartic moment of actually knowing Moody’s opinion and updated views. More to the point it means that another update can come at any time.
“What it also shows, however, is that the fact Moody’s will have been shown some kind of plan on their trip [to SA] in recent weeks and in their discussions with the government have been held in their status quo — so hats off to National Treasury.”
Moody's is the only major rating agency that has not already downgraded SA’s sovereign debt to sub-investment grade. Both Fitch Ratings and S&P lowered the country’s sovereign debt to below investment grade in 2017, in response to a surprise cabinet reshuffle by former president Jacob Zuma.
Attard Montalto said the possibility of a post-elections [Moody’s] committee and assessment, however, is high, as could also be a change of analyst after elections. “We still believe that with a deficit that will not consolidate below 4% of GDP, will not reach primary balance, and with growth not above 2%, a downgrade is inevitable.”
“So overall we still see a cut out there, just way off beyond the forecast horizon for now without a major shift not just in view but way of forming a view, within Moody’s,” he concluded.
Parsons said following elections, Moody's, along with the other credit rating agencies, will likely want more clarity and certainty on policy changes, a new cabinet as well as SA’s economic direction.
“The economy is not yet out of the woods and Moody's decision should be seen as a stay of execution, rather than as a reprieve,” Parsons said.
Soon after the announcement, the rand was little changed at R14.4873/$.