Tuesday 05, December 2017 by Matthew Amlôt

Moody's places South Africa's Baa3 ratings on review for downgrade

Moody's Investors Service has today placed the Baa3 long-term issuer and senior unsecured bond ratings of the government of South Africa on review for downgrade.

The decision to place the rating on review for downgrade was prompted by a series of recent developments which suggest that South Africa's economic and fiscal challenges are more pronounced than Moody's had previously assumed. Growth prospects are weaker and material budgetary revenue shortfalls have emerged alongside increased spending pressures. Altogether, these promise a faster and larger rise in government debt-to-GDP than previously expected.

The review will allow the rating agency to assess the South African authorities' willingness and ability to respond to these rising pressures through growth-supportive fiscal adjustments that raise revenues and contain expenditures; structural economic reforms that ease domestic bottlenecks to growth; and improvements to SOE governance that contain contingent liabilities. The review period may not conclude until the size and the composition of the 2018 budget is known next February. This will also allow Moody's to assess the policy implications of political developments during the review period and the likelihood of pressures on South Africa's key policymaking institutions persisting.

In the meantime, South Africa maintains credit strengths that still support its Baa3 rating. These include deep domestic financial markets and a well-capitalized banking sector; a well-developed macroeconomic framework; and low foreign currency debt. Adherence to the Constitution and the rule of law continue to be the key pillars of strength of South Africa's institutions.

South Africa's (P)Baa3 Senior Unsecured Shelf and MTN program ratings were also placed under review for downgrade, as was the (P)P-3 Short-Term rating. In a related rating action, Moody's has also placed on review for downgrade the Baa3 backed senior unsecured rating of the ZAR Sovereign Capital Fund Propriety Limited.

South Africa's long-term local-currency bond and bank deposit country ceilings remain unchanged at A2. The long-term and short-term foreign currency bond ceilings remain unchanged at A3/P-2, respectively. The long-term foreign-currency bank deposits ceiling stays at Baa3, while the short-term foreign-currency bank deposits ceiling remains unchanged at P-3.


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