Mar 24 2018 – Tehillah Niselow
Johannesburg – Although all South Africans will benefit from the Moody’s move not to downgrade South Africa, it is not enough for hard-pressed consumers, warned debt counselling firm Debt Rescue.
The Banking Association of South Africa (BASA) on Saturday welcomed Moody’s affirmation of South Africa’s investment rating, saying that another downgrade would have increased the cost of borrowing for the state, companies and financial institutions.
On Friday night, the ratings agency affirmed South Africa’s long term foreign and local currency debt ratings at ‘Baa3’ and revised the outlook to stable from negative, citing changes in the political arena, the strengthening of key institutions, improved economic growth and commitment to fiscal consolidation as reasons for their decision.
“All South Africans – business and consumers – will benefit from this show of confidence in the progress the country has made in addressing some of the concerns previously raised by the rating agency, and in its economy that is beginning to show some growth,” BASA said in a statement.
Sanisha Packirisamy, an economist at Momentum Investments said in a research note that a downgrade to SA’s local currency rating to junk status by Moody’s would have triggered SA’s exclusion from the Citi World Government Bond Index which could have prompted “significant capital outflows” from the SA government bond market of between R85bn to R130bn.
This is, however, only a slight reprieve for “hard-pressed” consumers who are facing the Value Added Tax (VAT) hike and a total 52c/l fuel and RAF levy increase on 1 April, warned Debt Rescue CEO Neil Roets on Saturday.
“Unfortunately we need much more than just this titbit of good news to make a real difference. Real economic growth – well beyond the 1.1% which is being predicted by the World Bank – is needed to significantly improve the lives of our people,” he said.
Non-negligible risk of going backwards
Packirisamy cautioned that there were issues South Africa still needed to address before celebrating the Moody’s decision as there remained a “non-negligible risk of a change in Moody’s outlook from stable back to negative” when they review their rating in October.
She said investors would be seeking clarity on the adoption of land expropriation without compensation as a policy of the ruling party and would remain vigilant of signs that the rule of law had been reinstated in the country through the conviction of a number of individuals involved in high-profile corruption cases.
Packirisamy said Momentum Investments did not expect any further negative action from the other ratings agencies in their next rating cycle. Standards & Poor’s (S&P) and Fitch both downgraded South Africa to sub-investment grade in 2017.
“A ratings outlook upgrade will remain dependent on S&P’s growth forecasts and progress on growth in GDP per capita trends.” Packirisamy, said that S&P was expected to review South Africa on May 25 2018, while Fitch did not announce its review schedule.
Read more at https://www.fin24.com/Economy/moodys-reprieve-not-enough-for-hard-pressed-consumers-20180324