Tuesday 27, March 2018 by Matthew Amlôt

Moody's confirms South Africa's Baa3 rating and changes the outlook to stable

Moody's Investors Service confirmed the long-term issuer and senior unsecured ratings of the Government of South Africa at Baa3, as well as the (P)Baa3 senior unsecured shelf and senior unsecured MTN program ratings. The outlook was changed to stable. The rating actions conclude the review for downgrade that commenced on 24 November 2017.

The confirmation of South Africa's ratings reflects Moody's view that the previous weakening of South Africa's institutions will gradually reverse under a more transparent and predictable policy framework. The recovery of the country's institutions will, if sustained, gradually support a corresponding recovery in its economy, along with a stabilization of fiscal strength.

The stable outlook reflects a careful balance of risks. The new administration faces equally significant opportunities and challenges. Steady progress in meeting the objectives set out in the President's recent State of the Nation Address (SONA) will be needed if the recovery in confidence that will be essential for the country's economic and fiscal prospects is to be sustained. Success offers the prospect of a virtuous circle of economic recovery, fiscal consolidation and rising social cohesion. But the political, policy and practical challenges of meeting diverse economic, social and fiscal objectives cannot be underestimated. Failure, at least as perceived by investors or voters, could lead to a further cycle of eroding economic, fiscal and institutional strength.

In a related decision, Moody's confirmed the government's other short-term rating at (P)Prime-3. Moody's also confirmed the Baa3 backed senior unsecured debt issued by ZAR Sovereign Capital Fund Propriety Limited, a special purpose vehicle whose debt issuance is ultimately the obligation of the South African government, and changed the outlook to stable.

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


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