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The SA Daily 30 July 2019

Moody's credit rating on radar

Shireen Darmalingam

  • Fitch has downgraded SA’s BB+ ratings outlook to negative because of fiscal deterioration due to “lower GDP growth and increased spending, including SOE support”. This now increases Fitch’s projections for the government debt-GDP ratio and also “heightens the difficulty of stabilising debt-GDP over the medium term”.
  • Fitch is clearly sceptical about government implementing policy changes to improve the fiscal and growth prognoses.
  • In the wake of the Fitch downgrade, we now look to SA’s sovereign rating from Moody’s which still has SA rated at Baa3 with a stable outlook. The risk of a downgrade in November has undoubtedly increased. SA’s country risk as measured by the 5y USD spread, currently at 170 bps, is only lower than Turkey (B1 negative).
  • Moody’s Investor Services commented last week that government’s bailout of Eskom, announced earlier that week, is credit-negative. Recall, the SA government has made R59bn available to Eskom over the next two years, according to a Special Appropriation Bill. The cash to help Eskom meet its financial obligations will be sourced from the National Revenue Fund. This cash injection allocates R26bn in 2019/20. Moody’s said that the Eskom bailout would be a further drain on the budget. In addition, the “lack of strategy to return Eskom to a more stable financial situation that would reduce the need for government support exacerbates the problem for government”.

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