Ratings agency Moody’s announced late on Friday evening that it was retaining South Africa on investment grade.
This was greeted with relief by government and by society at large. Moody’s is the only major ratings agency not to have reduced the country to so-called ‘junk status’. To be so graded raises the cost of credit and dissuades potential investors. It would also be a major vote of no-confidence in the current administration, and of its supposedly reformist inclinations.
Moody’s did, however, change its outlook (an assessment of the future direction) on the country from ‘stable’ to ‘negative’.
This raises the prospect that the country may be put on notice that it is heading towards a downgrade, and it is likely that the opportunity to turn this around is shrinking rapidly.
Said Moody’s in a statement: ‘The negative outlook signals in part Moody’s rising concern that the government will not find the political capital to implement the range of measures it intends, and that its plans will be largely ineffective in lifting growth.’
Finance minister Tito Mboweni responded: ‘Fellow South Africans, now is the time to roll up our sleeves and do what we have to do. It’s now or never. We need all hands on deck. Government, labour, business and civil society, we need each other now more than ever. The country is ours and it is only us who can turn it around.’
Treasury commented on the urgency of reform: ‘The rating affirmation affords South Africa a narrow window to demonstrate faster and concrete implementation of reforms that are already underway aimed at lifting growth and returning public finances to a more sustainable path. Economic reforms have to be implemented without delay.’
Earlier this year, Business Unity South Africa said South Africa needed to get its ‘fiscal house in order’ and align policies to ‘a pro-growth and confidence-inspiring economic strategy’.
Razia Khan of Standard Chartered noted that ‘unless we see corrective action in the February Budget, we could be looking at a heightened risk of a downgrade to sub-investment grade levels’.