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South Africa has no investment-grade sovereign credit rating from any of the major ratings agencies for the first time since its return to global markets in 1994.
Moody’s announced on Friday that it had cut the country’s last investment-grade rating to “junk,” sending the Rand to an all-time low of below 18 to the dollar. Standard & Poors and Fitch both downgraded Africa’s most industrialized
In its release, Moody’s cited structurally weak growth, limited capacity to stimulate the economy and an “inexorable rise” in government debt over the medium term as key reasons for the downgrade and maintenance of its “negative” outlook.
“Unreliable electricity supply, persistent weak business confidence and investment as well as long-standing structural
Debt-to-GDP (gross domestic product) increased by 10 percentage points from 2014-18 and Moody’s expects this to rise by a further 22 percentage points between 2019 and 2023, with the deficit widening in 2020 to around 8.5% of GDP.
Fiscal strains from interest payments and support to state-owned enterprises will continue, the agency predicted. The government debt burden is expected to rise from 69% of GDP in 2019 to 91% by the end of 2023.
‘It is up to South Africa’
In a statement Monday, Gable suggested that whether South Africa will return to investment grade or slide further away relies on the country demonstrating “significant improvement” in its economic reforms.
“It is hard to argue that South Africa hasn’t witnessed a steep deterioration in fundamentals, in part by our own inability to act over the last decade and in part due to the new risks due to the global virus,” Gable said.
“And so it is the agencies’ duty to reflect that in their ratings.
Bold structural reforms
“The World Bank, unlike the IMF, does not typically attach conditions to its loans. This is why it will be a more politically palatable action
“Government has been good, in recent weeks, in communicating its response to the pandemic by explaining how the lockdown works, but now it will have to be clear in communicating its economic policy response as well,” he added.