WORLD NEWS TOMORROW – MOODY’s Investors Service unexpectedly downgraded SA’s sovereign credit rating yesterday, saying its decision reflected the government’s “diminished capacity” to handle its political and economic challenges and a more negative investment climate in the wake of strikes in the mining sector.
The ratings agency lowered its A3 rating for government bonds in foreign currency by one notch to Baa1 and kept a negative outlook over what it described as “policy uncertainty” ahead of the elective conference of the African National Congress (ANC) in December.
“The revision reflects Moody’s view of the South African authorities’ reduced capacity to handle the current political and economic situation and to implement effective strategies that could place the economy on a path to faster and more inclusive growth,” Moody’s said.
Credit ratings help to determine a country’s cost of borrowing and affect investors’ appetite for assets. The decision by Moody’s brings its rating for SA down to the level set by Fitch and Standard & Poor’s.
The Treasury said in a statement all of the reasons given by Moody’s for the downgrade were being addressed through government programmes. “The core of SA’s policies remain stable and predictable.”
The decision came ahead of SA’s inclusion on Monday in Citigroup’s world government bond index, which was expected to add to the hefty purchases of government bonds by foreign ers seen this year.
“The government has totally underestimated the potential for a downgrade,” Nomura International economist Peter Attard-Montalto said. “We think the prospect for further downgrades from other agencies remains very high as the strikes in SA spread both within the mining industry and elsewhere in the economy.”
ANC secretary-general Gwede Mantashe said the government was capable of dealing with SA’s complex situation. But the private sector was on an “investment strike” as new jobs were only being created by the public sector.
Moody’s said ANC recommendations for “more radical policies” and “decisive action” to effect continued transformation at its policy conference in June suggested increased government intervention in the economy was likely.