Local & International Outlook
Will SA fall down the ratings hole?
The probability of another ratings downgrade for SA is high given the collapse in business confidence and the economy’s slide into a recession
The main economic events in August are a potential update from Moody’s on SA’s sovereign credit ratings, and in the US the annual Jackson Hole economic conference may provide greater clarity on the unwinding of monetary policy.
The probability of another ratings downgrade for SA is high given the collapse in business confidence and the economy’s slide into a recession. This, coupled with the drift towards more populist policy choices, the failure to clean out the state-owned enterprise (SOE) stable or introduce any material pro-growth reforms are all weighing on SA’s ratings.
But even though the economic and political climate continues to sour, it would be surprising if Moody’s moved again so soon, having downgraded SA’s local and foreign ratings to the cusp of junk in June. Moody’s is scheduled to make a potential announcement on August 11. BNP Paribas SA economist Jeff Schultz expects Moody’s to issue a statement affirming its negative outlook and registering its concern over policy and leadership battles in the economy, the growing contingent-liability risk emanating from SOEs, as well as recent "attacks" on the Reserve Bank. In June, Moody’s expressed scepticism over whether SA would achieve a political consensus that would support investment and reinvigorate reform. It warned "heightened political dysfunctionality, continued gradual institutional weakening and diminished clarity over policy objectives" were more likely. The trajectory of SA’s rating comes down to government’s ability to safeguard the country’s institutional, economic and fiscal stre...