SA will probably escape a junk assessment from Moody’s Investors Service this week in the first such verdict on the country’s creditworthiness since Cyril Ramaphosa came to power.
The change in leadership in February from the troubled era of Jacob Zuma will allow the country to cling on to the only major investment-grade rating it has left, according to all 15 respondents in a Bloomberg survey of economists and analysts.
The rand has rallied and business confidence rebounded since Ramaphosa succeeded Zuma as president of the ANC and the head of state. The risk of missing budget targets and economic growth stumbling, and the ANC’s move to pursue land expropriation without compensation may still jeopardise SA’s credit ratings. SA would fall out of gauges, including Citigroup’s World Government Bond index, it Moody’s downgrades the country’s debt to subinvestment grade, risking outflows of as much as R100bn.
"We expect the ratings agency to wait to evaluate fiscal performance and policy actions at this time, with any fiscal slippage or populist measures potentially triggering a revisit and potential downgrade later in the year," IHS Global Insight director Bryan Plamondon said by e-mail.
Moody’s put SA’s foreign- and local-currency ratings on review for a downgrade to junk in November, and is scheduled to make an announcement on Friday. The company currently assesses the country at one step above speculative grade on both criteria.
MPs have started the process of changing the Constitution to allow the government to expropriate property without paying for it. While Ramaphosa said this would not be done at the expense of the economy or food production, the DA and farmers’ groups say it will deter investment. That, and economic growth that underperforms, remained risks, said Elize Kruger, an economist at NKC African Economics.
"A disappointment on the actual growth outcome could definitely be credit negative," she said by phone. "If we go south on the whole land expropriation resolution and we lose the investor confidence again on this and the rand slides and so on, we could definitely move backwards on the ratings story."
The rand was 0.1% weaker at R12.0257 to the dollar as of 7.21am.
A downgrade to junk by Moody’s will knock the optimism that has boosted confidence and raised the hope that economic growth can exceed forecasts this year and next.
S&P Global Ratings and Fitch Ratings both cut SA’s local- and foreign currency debt to junk last year. Falling out of gauges such as the Citigroup one could raise borrowing costs as a time when the nation plans to tap international markets for as much as $3bn.
"Cyril Ramaphosa’s rise to the presidency is a big boost to confidence and it will help us, but the land expropriation issue may become a big deterrent," Kimon Boyiatjis, chief investment officer at Trident Capital in Cape Town, said by phone. "It’s one thing to appoint someone in government who is more credible than his predecessor, but he now has to walk the walk."
Bloomberg
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