NEWS

Junk Status: It Is Here

Ratings agencies have reacted badly to Gigaba's medium-term budget statement.

31/10/2017 06:16 SAST | Updated 31/10/2017 06:16 SAST
Sumaya Hisham / Reuters
Finance Minister Malusi Gigaba speaks to members of the media after delivering his medium term budget speech in Parliament, in Cape Town, South Africa, October 25, 2017.

South Africa seems headed towards another downgrade. The second of the major three ratings agencies, Moody's, has reacted badly towards Finance Minister Malusi Gigaba's medium-term policy statement, signalling that it will downgrade South Africa's credit rating, Business Day reported.

Moody's is set to issue its next review on November 24.

Ratings Agency Fitch, which has already downgraded South Africa to junk status, issued a bleak statement last week, while Standard & Poor's (S&P) has yet to comment.

According to Fin24, last week, Fitch said that there was uncertainty about whether or not South Africa would push ahead with the nuclear-energy programme: Gigaba had not indicated that it would in his speech, but Fitch said that the appointment of David Mahlobo as energy minister signalled otherwise.

The dire economic picture "suggests that the change in direction of policymaking away from a focus on fiscal consolidation that we anticipated as a consequence of March's Cabinet reshuffle is underway and occurring faster than we had expected," Fitch reportedly said.

Business Day reported that it was expected that the ratings agencies would wait for the outcome of the ANC's elective conference in December before deciding on SA's credit rating, but this no longer appears to be the case.

On Monday, Moody's reportedly said that the medium-term policy statement was the first one in years that was not aimed at fiscal consolidated.

"In our view, unless the government issues a credible fiscal consolidation plan in the February 2018 budget, debt sustainability is at risk," Moody's reportedly said.

Moneyweb reported that global banks, including the Bank of America, painted a gloomy picture, predicting that it was a question of when, not if, South Africa would be downgraded again.

The Bank of America estimated that there would be rand debt outflows of $14-billion if the Rand debt is excluded from Citigroup's World Government Bond Index, which has as a requirement a non-junk rating from Moody's and S&P's.