Credit ratings agency Moody’s Investors Service has reportedly downgraded debt issued by the Land Bank by one notch to Ba1, putting it in junk territory. The outlook is negative.
According to Business Day Moody’s said that the downgrade reflects its assessment that the government will, in the future, have less scope to support distressed state-owned enterprises (SOEs).
“Moody’s government support assumptions are aligned to those used for the other rated SA development banks, and balance increased fiscal challenges, which suggest that the government will be more selective in dispersing financial support to SOEs, against the government’s willingness to support these institutions in view of its full ownership and the development banks’ policy mandates.”
To avoid a sovereign downgrade, namely, a downgrade of the country as a whole, the government needs to arrest rising debt and bring spending under control.
Moody’s is the only credit rating agency that still rates South Africa’s sovereign debt at investment grade. However, it is due to take a rating decision in March, which could see South Africa downgraded by a notch into junk territory.