19 March 2018
Moody's in focus
- S&P and Fitch both have a stable outlook on SA’s sovereign credit ratings, (local and foreign currency debt, (LC and FC)), which we believe reflects their comfort that SA’s ratings are appropriate and unlikely to be changed in the near term. However, Moody’s had placed SA’s credit ratings on “review” in December, and currently rates SA’s ratings just above the investment grade threshold. Moody’s has also confirmed that the negative outlook can remain in place after resolution of the review.
- Moody’s specifically indicated that it would, in its review, assess the government’s willingness and ability to implement “growth-supportive fiscal adjustments” to raise revenues and contain expenditures; to implement “structural economic reforms that ease domestic bottlenecks to growth”; and “improve SOE governance to contain government’s contingent liabilities”.
- After the policy and political improvements since mid-December and the constructive 2018 Budget, Moody’s could not realistically have expected more ratings-positive steps by now. While there are still some challenges and risks ahead, our expectation is that Moody’s will not downgrade SA’s rating this week. This would be positive for the rand and for the bond market.
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