Has the resignation of Zimbabwe’s President Mugabe put SA’s downgrade on hold?

Written by Dr Conrad Beyers, Barclays Africa Chair in Actuarial Science at the University of Pretoria

Credit rating downgrades for South Africa that were widely expected for “Black Friday” (24 November) appear less likely after the resignation of Pres. Robert Mugabe of Zimbabwe.

Credit rating agencies cite political related risks as the major element in their ratings decisions for South Africa. For this reason, significant positive sentiment that accompanies the political transition in Zimbabwe, which may positively affect the entire SADC region, is likely to convince rating agencies to follow a “wait-and-see” approach before deciding to downgrade South African debt further.

It is still possible that we are downgraded on Friday. In the light of the recent game-changing events in Zimbabwe rating agencies may be reluctant to commit to drastic decisions in the short term. Past experience shows that it is not typical for rating agencies to err on the pessimistic side.

Rating agencies are very careful to retain their credibility. Rating agencies however carry a risk of being “proven wrong” over the coming months if South Africa is severely downgraded in the midst of positive sentiment and the accompanying (even slight) potential for positive developments in December at the South African ruling party’s elective conference.

Over the longer term, the likelihood of credit rating downgrades could still be high, depending on economic and social developments.

Note: The University of Pretoria hosts the Barclays Africa Chair in Actuarial Science – the views expressed by the holder of the Chair do not aim to represent any stance or viewpoint of Barclays Africa.

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