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<p>Many South African banks will be reporting their financial results in the coming days. As expected, COVID-19 has brought on a financial crunch for banks that were already downgraded in March, by Fitch Ratings. Mahin Dissanayake, Senior Director at Fitch Ratings joins CNBC Africa to give insight into the position that banks are in and the South African Reserve Bank’s response to COVID-19.</p>


COVID-19: Is another downgrade on the cards for SA banks?


<p> By: <a href="https://www.cnbc.com/elliot-smith/">Elliot Smith</a></p>



<p><strong> KEY POINTS</strong></p>



<ul><li><strong>South Africa now has no investment-grade sovereign credit rating from any of the major ratings agencies for the first time since its return to global markets in 1994.</strong></li><li><strong>Moody’s announced on Friday that it had cut the country’s last investment-grade rating to “junk,” sending the Rand to an all-time low of below 18 to the dollar.</strong></li><li><strong>Finance Minister Tito Mboweni has&nbsp;announced the creation of a unit within the finance ministry to focus on structural reform in a bid to fundamentally reshape the South African economy.</strong></li></ul>



<hr class="wp-block-separator"/>



<p>South Africa has lost its last remaining major investment-grade sovereign credit rating, as&nbsp;<a href="https://www.cnbc.com/2020/03/04/next-budget-moves-will-make-or-break-south-african-economy.html">existing economic weakness</a>&nbsp;is compounded by the potential impact of the global coronavirus pandemic.</p>



<p>South Africa has no investment-grade sovereign credit rating from any of the major ratings agencies for the first time since its return to global markets in 1994.</p>



<p>Moody’s announced on Friday that it had cut the country’s last investment-grade rating to “junk,” sending the Rand to an all-time low of below 18 to the dollar. Standard &amp; Poors and Fitch both downgraded Africa’s most industrialized economy to sub-investment grade in 2017.</p>



<p>In its release, Moody’s cited structurally weak growth, limited capacity to stimulate the economy and an “inexorable rise” in government debt over the medium term as key reasons for the downgrade and maintenance of its “negative” outlook.</p>


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<p>The situation has been exacerbated by the expected economic impact of the coronavirus pandemic. Confirmed cases in South Africa have now exceeded 1,300, though the government is hoping that&nbsp;<a href="https://www.cnbc.com/2020/03/24/south-africa-deploys-police-and-army-for-3-week-coronavirus-lockdown.html">drastic early lockdown measures</a>&nbsp;will prevent the exponential spread seen in Europe and the U.S.</p>



<p>“Unreliable electricity supply, persistent weak business confidence and investment as well as long-standing structural labour market rigidities continue to constrain South Africa’s economic growth,” Moody’s said, adding that these factors mean South Africa is entering a period of much lower global growth in an “economically vulnerable position.”</p>



<p>Debt-to-GDP (gross domestic product) increased by 10 percentage points from 2014-18 and Moody’s expects this to rise by a further 22 percentage points between 2019 and 2023, with the deficit widening in 2020 to around 8.5% of GDP.</p>



<p>Fiscal strains from interest payments and support to state-owned enterprises will continue, the agency predicted. The government debt burden is expected to rise from 69% of GDP in 2019 to 91% by the end of 2023.</p>



<h2 class="wp-block-heading">‘It is up to South Africa’</h2>



<p>“South Africa’s credit rating has deteriorated because of very low (and currently negative) economic growth, large fiscal deficits and sharply rising public debt, loss-making state-owned entities, and deep contestation of proposed social and economic policy reforms,” explained Jeff Gable, head of research at South Africa’s Absa Bank.</p>



<p>In a statement Monday, Gable suggested that whether South Africa will return to investment grade or slide further away relies on the country demonstrating “significant improvement” in its economic reforms.</p>



<p>“It is hard to argue that South Africa hasn’t witnessed a steep deterioration in fundamentals, in part by our own inability to act over the last decade and in part due to the new risks due to the global virus,” Gable said.</p>



<p>“And so it is the agencies’ duty to reflect that in their ratings. Similarly it is clear that it is up to South Africa, and not the credit rating agencies, as to which direction that country would like to take going forward.”</p>



<h2 class="wp-block-heading">Bold structural reforms</h2>



<p>On Sunday, Finance Minister Tito Mboweni and South African Reserve Bank (SARB) Governor Lesetja Kganyago held a media conference call, in which Mboweni said that he and President Cyril Ramaphosa had vowed to move “more boldly” on their structural reforms program.</p>



<p>Mboweni announced the creation of a unit within the finance ministry called “Vulindlela” – which means “lead the way” in isiZulu – that “will become the front soldiers of structural reforms in the South African economy,” according to a research note Monday from NKC African Economics.</p>



<figure class="wp-block-image"><img decoding="async" src="https://image.cnbcfm.com/api/v1/image/105500770-1539253589126gettyimages-909184932.jpeg?v=1539253774&amp;w=678&amp;h=381" alt="GP: Pre-WEF breakfast briefing ahead of Davos 181011 Asia "/><figcaption> President Cyril Ramaphosa during a pre-World Economic Forum breakfast briefing on January 18, 2018 in Johannesburg, South Africa.&nbsp;Moeletsi Mabe| Sunday Times | Gallo Images | Getty Images </figcaption></figure>



<p>The finance minister also suggested in an interview with newspaper&nbsp;<a rel="noreferrer noopener" href="https://city-press.news24.com/News/no-time-for-ideology-if-not-imf-then-give-me-the-money-mboweni-after-lockdown-junk-status-batters-sa-20200329" target="_blank"><em>City Press</em></a>&nbsp;over the weekend that the World Bank, and not the IMF (International Monetary Fund), would be the first port of call for loan financing.</p>



<p>“The World Bank, unlike the IMF, does not typically attach conditions to its loans. This is why it will be a more politically palatable action for the government in South Africa, where public opinion is generally suspicious of the IMF and the effects its policy prescriptions have had in poor countries,” NKC Senior Political Economist Francois Conradie said Monday.</p>



<p>However, Conradie suggested that the types of reforms which will address the issues that led to Moody’s downgrade, such as deep cuts to the public sector wage bill, privatizing state-owned enterprises (SOEs), or relaxing strict labor legislation, will be a hard political sell.</p>



<p>“Government has been good, in recent weeks, in communicating its response to the pandemic by explaining how the lockdown works, but now it will have to be clear in communicating its economic policy response as well,” he added.</p>


PRETORIA, SOUTH AFRICA - MARCH 16: Finance minister, Tito Mboweni briefs the media on the details of government interventions in various sectors of the departmental portfolios on COVID-19 at DIRCO Media Centre.

106468131-1585649490275gettyimages-1207457483

South Africa looks to structural reforms as it loses its last investment-grade credit rating


<p>JOHANNESBURG (Reuters) &#8211; Moody’s will cut South Africa’s sovereign credit rating later on Friday as a recession deepened by the impact of coronavirus frustrates economic reform efforts aimed at reducing government debt, a Reuters poll of economists found.</p>



<p>Taken in the last three days, the survey showed 12 of 18 respondents saying Moody’s, the only major credit rating agency that still rates South Africa’s bonds as investment-grade, will cut them to “junk” status. Standard &amp; Poor’s and Fitch both cut their ratings to junk nearly three years ago.  </p>



<p>Eleven economists who answered an extra question said the rating was “still relevant” despite a punishing market sell-off that has overshadowed the long-awaited decision, while five said it was “important”. Only two said whether or not Moody’s downgrades the bonds to junk was “irrelevant.” </p>



<p>“It may not be a market-moving event at this juncture but is important going forward as sub-investment grade from all three rating agencies will undoubtedly raise the cost of capital or funding in South Africa,” said economist Hugo Pienaar at the Bureau for Economic Research. </p>



<p>The rand, stocks and bonds have been under intense pressure as the pandemic hits asset prices. But many analysts say South African assets have been trading as though they are junk-rated for at least a couple of years already. </p>



<p>“In our view, the Moody’s downgrade itself has for some time been discounted by financial markets, though it remains uncertain exactly what impact the subsequent World Government Bond Index (WGBI) expulsion will have,” said Elna Moolman, economist at Standard Bank. </p>



<p>“Guided by global examples in this regard, it is possible that the bulk of the repricing has already occurred.”  </p>



<p>With the virus still spreading, in a worst-case scenario, median forecasts showed South Africa’s economy would shrink by 4% in Q1, 8% in Q2 and 5% in 2020 as a whole, according to the median forecasts from answers to an additional question. </p>



<p>The last Reuters poll prior to the announcement of the 21-day lockdown for South Africa that started on Thursday evening predicted the economy would shrink 0.4% in Q1, then grow 0.9% in Q2 and 0.3% for the year as whole. </p>



<p>“As the country enters a minimum of a three-week lockdown period it means domestic fiscal metrics are likely to get significantly worse this year, with sovereign debt ratios now almost certain to rise,” said Jeffrey Schultz, economist at BNP Paribas.</p>



<p>South African assets recovered on Wednesday after the central bank launched a bond-buying programme, seeking to drum up demand in credit markets as the coronavirus epidemic weighs on the ailing economy. </p>



<p>Christopher Shiells at Informa Global Markets said a downgrade to junk status would probably be seen as a relief by the government as it would free it up to make a significant fiscal response to the crisis. </p>



<p>“Rating agencies are expected to downgrade a number of sovereigns due to the coronavirus. Outflows and asset weakness have been occurring over last month, so the worst has already happened in that sense,” he said. </p>



<p>(Editing by Ross Finley and Catherine Evans)</p>



<p>This article was first published on Reuters Africa <a href="https://af.reuters.com/article/investingNews/idAFKBN21E150-OZABS">https://af.reuters.com/article/investingNews/idAFKBN21E150-OZABS</a> and is republished with its permission.</p>



<p>For more coverage on COVID-19 visit: <a href="https://www.cnbcafrica.com/covid-19/">https://www.cnbcafrica.com/covid-19/</a></p>


Moody’s to cut South Africa’s sovereign credit rating to junk – economists

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<p>The Land Bank&#8217;s debt has become more expensive with Moody’s downgrading the bank to junk status. The credit ratings agency said this was due to the unlikeness of the South African government being able to support the Development Finance Institution in time of need. Joining CNBC Africa to discuss what this means is Sydney Soundy, Acting Chief Executive Officer of the Land Bank.</p>


Downgrade material for Land Bank

Downgrade material for Land Bank, to consult lenders

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<p>As global tensions are on the rise and a Moody’s credit rating downgrade looms on South Africa – Maarten Ackerman, Chief Economist and Advisory Partner at Citadel joins CNBC Africa for an investors’ guide to 2020.</p>


Maarten Ackerman’s insights on what should guide investors guide in 2020

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<p>Recent troubles at South Africa&#8217;s electricity public utility Eskom have led to a revised outlook on the economy by Fitch ratings. For a discussion on the bank&#8217;s reaction to the latest downgrade and if the country&#8217;s monetary policy was ready for it, CNBC Africa&#8217;s Arnold Kwizera caught up with South African Reserve Bank (SARB) Governor, Lesetja Kganyago for more.</p>


How does Eskom downgrade affect monetary policy? A revised look at economic stability


<p><em>Chris Holdsworth, investment strategist at Investec Wealth &amp; Investment, discusses the Moody’s statement on South Africa’s credit rating that is due to be released on 29 March.</em></p>



<p>Historically, downgrades have proven to be a buying opportunity as markets tend to price in the downgrade in advance. Downgrades also usually focus the minds of governments to institute required reforms.</p>



<p>Moody’s is the only rating agency that has not downgraded South Africa to sub-investment grade; so a downgrade could affect South Africa’s inclusion in a number of global bond funds and indices.<br><br>Moody’s is unlikely to downgrade South Africa this time around, but could put South Africa on a negative outlook, which would mean a subsequent downgrade if the issues raised are not addressed. Among the most pressing of these is <a href="https://www.investec.com/en_za/focus/economy/eskoms-financial-stability-uncertain-despite-tariff-hikes-and-bailouts.html">the Eskom crisis.</a><br><br>However, he also points out that bond markets are already pricing South African government bonds at sub-investment grade. We are priced at worse than Brazil, which is already sub-investment grade.<br><br>It’s a similar picture in the currency market (the rand is weaker against its emerging market peers) and also in the credit default swap (CDS) market, which measures the cost of insuring against default.<br></p>



<h4 class="wp-block-heading">A downgrade can be a buying opportunity</h4>



<p>                                                                                 If a downgrade does happen, it&#8217;s not all bad news. Based on analysis of sovereign downgrades over the years, the actual downgrade has been a buying opportunity: credit default swap spreads typically come down over the subsequent six months.<br><br> This sounds counter-intuitive, but there is some logic to it. Markets tend to price in the downgrade in advance, while the downgrade usually focuses the minds of governments to institute reforms that will address their weaknesses. </p>



<h4 class="wp-block-heading">Do ratings really matter?</h4>



<p>                                                                                 Given the above, one has to ask: do ratings really matter? They do, simply because a number of global bond indices (which are tracked by passive funds) require a country to have an investment grade rating to be included, while many actively managed funds only invest in investment grade bonds, which indicates there would in all likelihood be an outflow in the event of a downgrade.<br><br>Similarly, many corporate bond issuers (including banks) would be affected. The Reserve Bank has been conducting stress tests in this regard.</p>



<p><br></p>


Moody’s decides: Has a downgrade to junk already been priced in?

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<p>Under the circumstances, Cas Coovadia, Managing Director of the Banking Association of South Africa, was happy with the Budget Speech today. He told CNBC Africa’s Fifi Peters it was important to put conditions for the utilisation of funds for SEOs, and to make public the details of the Presidential Task Team’s recommendations and how Eskom will be broken up into three, and how the funding will be linked to that. He also gave his opinion of the Budget as a whole and a potential ratings downgrade.</p>


Did fimin Mboweni do enough to avoid ratings downgrade?

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<p>With South Africa’s debt-to-GDP ratio increasing and breaching its fiscal deficit ceiling will Moody’s downgrade it to junk? Lesetja Kganyago, Governor of the South African Reserve Bank explained what a downgrade to junk would mean.</p>


#Budget2019: What a Moody’s downgrade will mean for SA

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<p>The only ratings agency that ranks South Africa as investment grade, hosted a summit in Johannesburg today. The ratings agency is due to give its latest review on Africa’s most developed economy next month. CNBC Africa’s Fifi Peters spoke to Lucie Villa, Moody’s Lead Analyst for South Africa. She asked her whether the recession in the country could be the nail in the coffin for a ratings downgrade to junk status.</p>


Is SA on the precipice for a downgrade to junk? Moody’s answers

<p>JOHANNESBURG (Reuters) &#8211; MTN Group has been put on review by Moody’s for downgrade after the South African mobile phone operator said it was on the hook for a total of $10.1 billion from its biggest market Nigeria, the ratings agency said on Thursday.</p>
<p>“MTN’s ratings have been placed on review for downgrade to reflect the uncertainty around the potential implications of the recent CBN (Central Bank of Nigeria) and NAG (Nigerian Attorney General) announcements on MTN’s credit profile,” Moody’s said.</p>
<p>Africa’s biggest wireless phones group said on Tuesday the Nigerian Attorney General was seeking $2 billion in taxes incurred over the last decade.</p>
<p>That followed an order days before from that country’s central bank that MTN’s Lagos-based unit hand over $8.1 billion that it said was illegally sent abroad.</p>
<p>Reporting by Tiisetso Motsoeneng; Editing by James Macharia</p>


MTN placed on review for downgrade by Moody’s, what you need to know…

<p data-reactid="35">South Africa has plunged deeper into “junk” ratings territory and its fiscal situation is worsening but some investors are undeterred, choosing to buy its bonds cheap and pocket one of highest yield premiums offered in emerging markets.</p>
<p><div id="attachment_121833" style="width: 810px" class="wp-caption aligncenter"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-121833" class="wp-image-121833 size-full" src="http://cnbc.africa/wp-content/uploads/2017/05/Rand-Wikipedia.jpg" alt="" width="800" height="639" /><p id="caption-attachment-121833" class="wp-caption-text">Photo: Wikipedia.</p></div></p>
<p data-reactid="43">S&amp;P Global Ratings downgraded South Africa’s local currency debt to sub-investment grade on Friday and pushed the foreign currency debt deeper into “junk” territory, while Moody’s put the country on review for a downgrade.</p>
<p data-reactid="44">Although widely expected, the downgrade by S&amp;P sparked a temporary sell-off in bonds. But the move had almost completely reversed by Monday as investors “bought the dip”, with local and offshore fund managers lured by yields approaching 10 percent.</p>
<p data-reactid="46">“Many managers are still looking to buy the sell-offs and any volatility because of losing investment grade,” said John Morris, a strategist at Bank of America Merrill Lynch in Johannesburg.</p>
<p>“But when markets calm down they’d like to sell the rallies, but that obviously depends on the strength of the rally.”</p>
<p data-reactid="48">The yield on South Africa’s benchmark 2026 bond climbed more than 10 basis points in early trade on Monday following news of the S&amp;P downgrade late on Friday. By midday, however, it had shed 25 basis to its lowest in nearly three weeks at 9.215 percent, driven by renewed interest in the debt by investors chasing the hefty return.</p>
<p data-reactid="49">The 10-year bond offers a yield well above equivalent bonds from Indonesia, Romania or Hungary that are similarly rated.</p>
<p data-reactid="50">“If the external backdrop stays positive, a 9.5 percent yield is OK. I don’t think there is much downside (to bond prices) from here,” said portfolio manager at BNP Paribas Cristiana de Alessi.</p>
<p data-reactid="51">Yields on South Africa’s longer-dated bonds are even more attractive, offering yields north of 10 percent, enough for some investors to ignore the mounting fiscal and political risks that have triggered two downgrades this year by the big rating firms.</p>
<p>“Absolute yields of around 10.25 percent on bonds are obviously attractive in the short term,” said Mokgatla Madisha, head of fixed income at Sanlam Investments, who has 180 billion rand under management. “However we’re looking at the belly of the curve, from R186’s to R213‘s, where yields are a little lower but still very attractive.”</p>
<h3>TURBULENCE</h3>
<p data-reactid="54">Domestic fund managers like Madisha have been underweight or scaling down their holdings of local bonds, spooked by the political turbulence that has seen President Jacob Zuma fire three finance ministers in as many years.</p>
<p data-reactid="55">In 2017 local pension funds cut their holding of government bonds to a five-year low of 26.3 percent of South Africa’s 2.2 trillion rand ($160 billion) of outstanding debt. Non-residents meanwhile hold almost 42 percent of the country’s debt.</p>
<p data-reactid="56">South Africa’s capital market ranks beside those of advanced economies in sophistication, allowing government to draw on it for 90 percent of its funding, hence the importance of the local currency rating.</p>
<p data-reactid="57">“Demand for high yielding emerging market assets still outweighs domestic factors such as politics, fiscal risks and downgrades,” said Dave Mohr and Izak Odendaal, chief strategists at the country’s biggest money manager, Old Mutual, in a note.</p>
<p data-reactid="58">Unlike other big emerging markets like Russia or Turkey, South Africa requires by law that domestic pension and mutual funds invest in government debt as part of their liquidity measures. That allowed the Treasury to up its debt issuance earlier this year to plug a growing fiscal deficit.</p>
<p>($1 = 13.7513 rand)</p>
<div class="Attribution_attribution_o4ojT" data-reactid="59">
<p class="Attribution_content_27_rw" data-reactid="60">Additional reporting by Sujata Rao in London; Editing by James Macharia and Catherine Evans</p>
</div>


Investors undeterred by South Africa’s tumble to junk “buying the dips”

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<p>According to reports, President Jacob Zuma has asked Finance Minister Malusi Gigaba to finalise proposals for R25 billion worth of spending cuts and create revenue boosting measures worth R15 billion.</p>


Treasury unlikely to hit SA’s corporates with tax hikes to close R40bn tax hole

<p>South African President Jacob Zuma called for concrete measures to boost growth after S&amp;P Global Ratings downgraded the local currency debt to sub-investment grade, while foreign currency debt was pushed deeper into “junk” territory.</p>
<p><div id="attachment_43286" style="width: 610px" class="wp-caption aligncenter"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-43286" class="wp-image-43286 size-full" src="http://cnbc.africa/wp-content/uploads/2017/02/s_p_-_flickr.jpg" alt="" width="600" height="386" /><p id="caption-attachment-43286" class="wp-caption-text">Photo: Flickr.</p></div></p>
<p data-reactid="43">The rand recovered on Monday from steep falls suffered late on Friday after the downgrade, taking some relief from Moody’s decision to only place South Africa on review for downgrade.</p>
<p data-reactid="44">A cut to “junk” on the local currency debt by both S&amp;P and Moody’s could have seen South African debt lose its place in Citi’s World Government Bond Index (WGBI), the biggest of the global benchmarks and tracked by about $2-3 trillion of funds.</p>
<p data-reactid="46">Zuma directed Finance Minister Malusi Gigaba on Monday to finalize proposals for expenditure cuts amounting to 25 billion rand ($2 billion) and revenue boosting measures totaling 15 billion rand &#8211; including through taxes.</p>
<p data-reactid="47">A proposal by a presidential commission to introduce free higher education should also be implemented in a “fiscally-sustainable manner”, the statement from Zuma’s office said.</p>
<p data-reactid="48">Gigaba in October unveiled a gloomy outlook for the economy as he flagged weaker growth expectations, wider budget deficit estimates and rising government debt.</p>
<p data-reactid="49">Both S&amp;P and Moody’s cited deterioration in South Africa’s economic growth prospects and public finances.</p>
<p>As of 1032 GMT, the rand <a href="https://www.reuters.com/finance/currencies/quote?srcCurr=ZAR&amp;destCurr=USD">ZAR=D3</a> was trading at 13.7450 per dollar, 2.98 percent firmer than its New York close on Friday, when it had tumbled 2 percent following S&amp;P&#8217;s announcement.</p>
<p data-reactid="51">“The market is finding some relief in the fact that Moody’s has chosen to give us basically till February before they change our rating, if they do change our rating,” said Shaun Murison, currency strategist at IG Markets.</p>
<p data-reactid="52">In fixed income, the yield for the benchmark government bond ZAR186= was down 10 basis points to 9.235 percent, also recovering after rising as much as 11 basis points earlier in the session.</p>
<p data-reactid="53">Moody’s said the review will allow it to assess the South African authorities’ willingness and ability to respond to the rising pressures through growth-supportive fiscal adjustments that raise revenues and contain expenditures.</p>
<p data-reactid="54">“The review period may not conclude until the size and the composition of the 2018 budget is known next February,” Moody’s senior analyst for South Africa, Zuzana Brixiova, said in a statement.</p>
<p>Moody’s rates South Africa’s foreign and local currency debt on their lowest investment grade rung of Baa3.</p>
<h3><strong>VOLATILITY</strong></h3>
<p data-reactid="57">S&amp;P’s decision will see South Africa excluded from the Barclays Global Aggregate index, whose inclusion criteria requires investment grade rating on its local currency debt from any two ratings agencies.</p>
<p data-reactid="58">Fitch already rates South African debt as “junk”, and affirmed the rating on Thursday.</p>
<p data-reactid="59">If nothing changes, the country will be downgraded to “junk” by all ratings agencies and the WGBI dream will be no more, at least for many a year, said Standard Bank chief trader Warrick Butler in a note.</p>
<p data-reactid="60">“What this means, in terms of the currency, will be increased volatility.”</p>
<p data-reactid="61">Falling out of the WGBI could have led to a larger sell-off in bonds, even though rising yields could present a buying opportunity for some yield-hungry investors.</p>
<p data-reactid="62">“If you look at some of the metrics the real yields are among the highest in EM, the domestic curve is extremely steep, the current account is in better place than it was three to four years ago and the rand is quite competitive against likes of (Russia‘s) rouble or Brazilian real,” said London-based Paul Greer, senior trader at Fidelity International.</p>
<p data-reactid="64">“On the local side the real yield and steepness of curve look attractive from tactical perspective.”</p>
<p data-reactid="65">Analysts said an exclusion from the Barclays index would lead to outflows of about $2 billion, compared with more than $10 billion if South Africa was to fall out of Citi’s WGBI.</p>
<p>South African debt was dropped from one the widely used global bond indexes, the JPMorgan Emerging Market Bond Index Global in April after S&amp;P and Fitch downgraded foreign currency debt to sub-investment grade.</p>
<p>On the stock market, the Top-40 <a href="https://www.reuters.com/finance/markets/index?symbol=.JTOPI">.JTOPI</a> index was 0.25 percent lower at 53,863 while the broader all-share <a href="https://www.reuters.com/finance/markets/index?symbol=.JALSH">.JALSH</a> was down 0.24 percent at 60,180.</p>
<div class="Attribution_attribution_o4ojT" data-reactid="66">
<p class="Attribution_content_27_rw" data-reactid="67">Additional reporting by Sujata Rao in London; Editing by James Macharia and Richard Balmforth</p>
</div>


South Africa’s Zuma calls for action after S&P downgrade, rand up on Moody’s reprieve

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<p>Standard and Poor’s grabbed headlines after downgrading South Africa&#8217;s local debt to junk and foreign debt further down the sub-investment grade. Ravi Bhatia, Director, Sovereign Ratings at S&#038;P Global joins CNBC Africa for more.</p>


Why S&P is tougher on SA than Moody’s and Fitch

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<p>The WGBI is the most used global bond index for both indexation and benchmark purposes and requires at least one rating agency between S&#038;P and Moody’s to assign an investment grade credit rating to the local currency government bonds for inclusion.</p>


Why Goldman Sachs is buying into Ramaphosa’s New Deal

<p>South African government bonds weakened on Monday after S&amp;P Global ratings on Friday downgraded the country’s local currency debt to sub-investment grade, while Moody’s placed the country on review for downgrade.</p>
<p><img loading="lazy" decoding="async" class="aligncenter wp-image-122035 size-full" src="http://cnbc.africa/wp-content/uploads/2017/05/Rand-shutterstock.jpeg" alt="" width="730" height="425" /></p>
<p data-reactid="40">The rand, which had tumbled 2 percent on Friday, recovered in early trade on Monday at 14.0750 per dollar, as of 0645 GMT, 0.65 percent firmer than its New York close on Friday.</p>
<p>The yield for the benchmark government bond due in 2026 rose 6.5 basis points to 9.4 percent.</p>
<p data-reactid="43">Both S&amp;P and Moody’s cited deterioration in South Africa’s economic growth prospects and public finances.</p>
<p data-reactid="44">Moody’s said the review will allow it to assess the South African authorities’ willingness and ability to respond to the rising pressures through growth-supportive fiscal adjustments that raise revenues and contain expenditures.</p>
<p data-reactid="45">“The review period may not conclude until the size and the composition of the 2018 budget is known next February,” Moody’s senior analyst for South Africa, Zuzana Brixiova, said in a statement.</p>
<p data-reactid="46">The National Treasury said on Saturday it would outline “decisive” policy to strengthen South Africa’s fiscal framework in the annual budget next year.</p>
<p data-reactid="47">“Come February, especially once nothing will change in terms of fiscal policy, the country will be downgraded to ”junk“ by all ratings agencies and the WGBI dream will be no more, at least for many a year,” said Standard Bank chief trader Warrick Butler in a note, referring to Citi’s World Government Bond Index.</p>
<p>“What this means in terms of the currency will be increased volatility.”</p>
<p>Stocks were set to open lower at 0700 GMT, with the JSE securities exchange’s Top-40 futures index down 0.2 percent.</p>
<div class="Attribution_attribution_o4ojT" data-reactid="49">
<p class="Attribution_content_27_rw" data-reactid="50">Reporting by Olivia Kumwenda-Mtambo; Editing by Sherry Jacob-Phillips</p>
</div>


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