Should SA’s economic growth remain weak, the country is at risk of a further downgrade, Moody’s Investors Service has warned.
The ratings agency, which has SA at Ba2 — or two notches into junk status — with a negative outlook, said in its annual report on Tuesday that SA still faced the problems of very weak growth structurally and a high government debt burden.
The negative outlook for SA reflects risks to its economic growth and budget outcomes that could lead to an even larger debt burden in future, Moody’s said.
This outlook could be changed to stable if the government were to consolidate its finances in line with Moody’s baseline while medium-term growth picked up. However, Moody’s could downgrade the rating if SA’s growth remains very weak, primary deficits large and financing costs increase
“The coronavirus pandemic’s fallout will continue to weigh on SA’s economic growth and fiscal balance in 2021,” said Lucie Villa, vice-president and senior credit officer at Moody’s in a statement on Tuesday
The main credit strengths include robust core institutions, a deep financial sector and low levels of foreign-currency debt, Moody’s said.
Low levels of foreign currency debt on the government’s balance sheet and in the private sector and strong adherence to a free-floating exchange-rate regime buffer SA from external shocks.
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