South Africa’s current political divisions are the biggest threat to the country being downgraded by the bond credit rating company, Moody’s Investor Service.
This was the word on Tuesday from Moody’s Senior Vice President, Sovereign Risk Group, Kristin Lindow, addressing Moody’s 11th Annual South African Credit Risk Conference, held at Sandton’s Hilton Hotel.
“We’ve highlighted in our latest credit opinion that the increased political divisions that we’re seeing in South Africa threaten to impede structural reforms… We don’t know the ultimate outcome of some of this current noise surrounding the Hawks investigation for example, but regardless of that outcome, if the reform commitments were not to materialise, that would be how it would be reflected in our rating,” says Lindow.
Although the ratings agency stated that the probability of a downgrade were less than 50 per cent, it did warn that a cut was likely if economic growth fell below its estimated growth of 0.2 per cent this year.
On this news, the rand strengthened to 13.86 to the dollar at 2pm.
“The key drivers are whether the growth would recover. So we anticipate that growth will bottom out this year and then start to recover in subsequent years. So if we decide that that is unlikely to materialise, that could be one factor,” says Lindow.
As South Africa’s sovereign rating is set to be released on the 25th November, Lindow said that a possible downgrade wouldn’t be as drastic as being downgraded to junk status.
“Our rating is two notches above non-investment grade at present. So even if there were to be a downgrade of South Africa’s rating, which is not necessarily what is going to happen, we wouldn’t expect it to move to non-investment grade,” says Lindow.