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

JOHANNESBURG (Reuters) – 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.

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 & Poor’s and Fitch both cut their ratings to junk nearly three years ago.

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.”

“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.

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.

“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.

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

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.

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.

“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.

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.

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.

“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.

(Editing by Ross Finley and Catherine Evans)

This article was first published on Reuters Africa https://af.reuters.com/article/investingNews/idAFKBN21E150-OZABS and is republished with its permission.

For more coverage on COVID-19 visit: https://www.cnbcafrica.com/covid-19/

Related Content

Rwanda leverages on technology in the fight against COVID-19

Rwanda Biomedical Centre has established a new Covid-19 testing laboratory in Rubavu district with capacity of running 400 Covid-19 samples per day to help contain the pandemic in the area. This is the second testing lab established in Western Province after Rusizi District with capacity of running 500 samples per day. CNBC Africa's Fiona Muthoni had a conversation with Dr. Nsanzimana Sabin, Director General of RBC.

City Lodge faces resistance to its R1.2bn rights issue. Here’s why

In the wake of COVID-19 many listed companies have offered rights issues in order to raise capital during these trying times, but according to Oasis Asset Management there are good and bad equity issuances. Joining CNBC Africa for more is Adam Ebrahim, CEO of Oasis Asset Management.

Surgo Foundation: Why a young population is Africa’s best defence against coronavirus

Africa’s young population is the best defence against the COVID-19 pandemic, as the COVID-19 mortality rate for key populations has shown age as a factor for hospitalizations. This is according to the latest study by the Africa COVID-19 Community Vulnerability Index; CNBC Africa spoke to Dr. Sema Sgaier, Executive Director at the Surgo Foundation for more.

Professor Shabir Madhi gives update on SA’s first COVID-19 vaccine trials

It’s been almost three weeks since South Africa’s first COVID-19 vaccine trials began, we will be unpacking more on the progress of these trials as well as the latest emerging evidence brought to the attention of the World Health Organization regarding the airborne transmission of COVID-19. Joining CNBC Africa for more is Shabir Madhi, Professor of Vaccinology at the University of Witwatersrand.

Subscribe to our newsletter

Sign up for free newsletters and get more CNBC AFRICA delivered to your inbox

More from CNBC Africa

African born Billionaire Elon Musk’s net worth zooms past Warren Buffett’s

The blistering rally also puts Musk in reach of a payday potentially worth $1.8 billion, his second jackpot from the electric car maker in about two months.

U.S. sets record for new COVID cases third day in a row at over 69,000

“If we don’t adopt this best practice it could lead to a shutdown of business,” the Republican governor told local KLBK-TV in Lubbock, adding it was the last thing he wanted.

South Africa set to make SAA funding commitment, official says

JOHANNESBURG (Reuters) - The South African government is “on course” to provide a funding commitment for the restructuring of loss-making South African...

Akinwumi Adesina pays tribute to Prime Minister Amadou Gon Coulibaly

A humble man. A selfless man. A faithful man. A shining light. We met and spoke together on several forums around the world: on the plane, at airports, in high level forums and summits. My impression of him was the same: calm; wise; insightful. A man of few words, whose every word was always well honed for impact. He spoke always from his heart. An he had a heart of gold.

Partner Content

Maktech’s Godwin Makyao: Now Is A Time of Entrepreneurial Opportunity in East Africa

As an executive decision-maker in both the telecommunications and tourism industries, Godwin Makyao could not have experienced a more diverse set of...

Sanlam launches urgent job-preservation initiative in response to COVID-19

Sanlam Investments is responding to the COVID-19 pandemic through large-scale support of the recovery of South African companies, from small enterprises to...

Trending Now

Congo justice minister resigns after judicial reform dispute

KINSHASA (Reuters) - The Democratic Republic of Congo’s Justice Minister Celestin Tunda tendered his resignation on Saturday in the wake of a...

Veteran Zimbabwe farmer pours cold water on $58 million mission from Belarus with love.

“Belarus tractors have never been known for their quality or power. They were never bought by Zimbabwe farmers in the past. Training up 1000 Zimbabwe farmers isn’t the answer.

Congo central bank keeps 2020 economic growth forecast at -2.4%

(Reuters) - The Democratic Republic of Congo’s central bank kept its 2020 economic growth forecast unchanged at -2.4% because of the uncertainty...

South Africa’s rand recovers but caution remains, stocks slip

JOHANNESBURG (Reuters) - South Africa’s rand recovered in afternoon trade on Friday, after sliding earlier due to concerns about rising COVID-19 cases...
- Advertisement -