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Ratings agencies Moody’s and Fitch cut Angola’s credit rating further into Junk in recent weeks citing weak fiscal prospects, lower oil prices and a depreciating currency. Joining CNBC Africa for more and Angola’s MPC meeting is Rui Oliveira, CEO at BFA Asset Management.

Moody’s

Moody’s, Fitch cut Angola’s credit rating deeper into junk

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Moody’s has downgraded Mali&#8217;s foreign and local currency long-term issuer ratings to Caa1 from B3, and changed its outlook to negative from stable. Aurelien Mali, Vice President and Sovereign Analyst at Moody’s joins CNBC Africa’s Wole Famurewa for this conversation.

Moody’s downgrades Mali’s ratings to Caa1 with negative outlook

JOHANNESBURG (Reuters) &#8211; The South African government target to stabilise its ballooning debt by 2023 will be very difficult to achieve and unlikely, ratings agency Moody’s said on Thursday.



The Treasury on Wednesday presented a supplementary budget in response to the coronavirus crisis that projected a wider budget deficit, while public debt was estimated to be more than three quarters of gross domestic product in the medium term.



“In its ‘active scenario’, the government hopes to achieve a primary surplus by fiscal 2023 that would stabilise debt,” Moody’s said in a research note on the budget.



“Given South Africa’s weak track record of fiscal consolidation in recent years and the weak medium-term economic outlook, debt stabilisation by 2023 will be very difficult to achieve.”



The economy was in recession before the COVID-19 outbreak ravaged it, and the lockdown that followed late in March has put further strain on businesses and consumers.



The Treasury projects the economy will contract 7.2% this year.

gettyimages-658357218-594×594

Moody’s says South Africa unlikely to stabilise debt by 2023

ABUJA/LAGOS (Reuters) &#8211; A sharp rise in Nigeria’s sovereign debt and a ballooning financing gap could trigger a rating downgrade as policymakers in Africa’s biggest economy struggle to deal with the fallout from a coronavirus-induced oil price crash, a director at Fitch said.



The global ratings agency downgraded Nigeria to “B” in April with a negative outlook from “B+” citing aggravation of pressure on external finances.



Moody’s said in April it would likely downgrade the country if the government was unable to alleviate the damage to its revenue and balance sheet. S&amp;P cut Nigeria’s rating in March on weakening external finances.



Nigeria &#8211; also Africa’s top oil exporter &#8211; is under increasing pressure to stimulate growth and cut debt after its first quarter current account turned negative, overvaluing its naira currency. The oil price slump has slashed government revenues.



“We have two elements that could lead us to take a negative rating action/downgrade on Nigeria. Aggravation of external liquidity pressures and a sharp rise in government debt to revenues ratio,” Mahmoud Harb, sovereign ratings director at Fitch, told Reuters.



The debt to revenue ratio for Nigeria is set to worsen to 538% by the end of 2020, from 348% a year earlier, before improving slightly next year, Harb said. The medium debt ratio for “B” rated countries is 350%, he said.



Nigeria will need $23 billion to meet its external financing needs this year, Fitch estimates, noting that the country only has few options, including running down its reserves, after shelving plans to issue Eurobonds.



Abuja’s foreign currency reserves could fall to $23.3 billion this year if foreign exchange access is normalised, Harb said, from around $36 billion.



Nigeria has been restricting access since the pandemic to boost the naira, similar to a step it took when oil prices crashed in 2015, which worsened a 2016 recession.



The central bank is yet to provide currency to investors that need to leave Nigeria, weakening sentiment. Analysts estimate that around $2 billion needs to exit Nigeria.



Nigeria could avoid a ratings downgrade if it strengthens its finances, reforms its forex policy and shows a path to reducing its deficit by boosting non-oil revenues, Fitch’s Harb said.

shutterstock_306272309

Nigeria’s rating at risk as debt, financing gap rise-Fitch

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The Togolese government is taking part in the G-20 Debt Service Suspension Initiative, which suspends payments to bilateral Paris Club creditors from the first of May till the end of the year 2020. Ratings Agency, Moody’s says Togo’s participation in the initiative offers short term liquidity relief but poses risks for the private sector. Lucie Villa, Vice President and Senior Credit Officer at Moody’s joins CNBC Africa for more.

Moody’s: Togo’s participation in DSSI poses risks for private sector

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We’re into the second month since South Africa was kicked out of the World Government Bond Index following the downgrade to junk status by rating agencies Fitch, S&#038;P Global and Moody’s.

How the SA bond market is performing post WGBI exclusion

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The World Bank recently announced the first phase of an additional $500 million package to combat the locust invasion in East Africa and the Middle East. According to Moody&#8217;s, though crucial, the support package pales in comparison with the magnitude of the twin shocks that the East African economies face from the pandemic and the locust invasion. Kelvin Dalrymple, vice-President and Sovereign Analyst at Moody’s joins CNBC Africa for more.

Locust plague

Locust plague, COVID-19 weigh on East Africa’s economic outlook

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According to a Moody&#8217;s report, measures taken by Tanzania&#8217;s Central Bank will support the market-funded banks in meeting their funding and liquidity needs amid the Covid-19 pandemic. However, these measures are not enough to prevent a decline in bank asset quality. Peter Mushangwe, Banking Analyst at Moody’s joins CNBC Africa for more.

Moody’s: Tanzania’s monetary policy to support banks’ liquidity

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Moody&#8217;s Investors Service has affirmed the Government of Ghana&#8217;s long-term local and foreign currency issuer and foreign currency senior unsecured bond ratings at B3 and changed the outlook to negative from positive. Derrick Mensah, Portfolio Manager at IC Asset Managers joins CNBC Africa for more.

Moody’s changes Ghana’s outlook to negative

Moody’s changes Ghana’s outlook to negative, B3 rating affirmed

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Moody’s says the rapid and widening spread of the coronavirus outbreak and related oil price shocks are creating an unprecedented credit shock across a wide range of regions and markets adding that for Nigeria, these shocks has amplified existing credit vulnerabilities both over the immediate and longer term. Aurelien Mali, Vice President and Sovereign Analyst at Moody’s joins CNBC Africa for more.

Moody’s affirms Nigeria’s B2 ratings

Moody’s affirms Nigeria’s B2 ratings, maintains negative outlook

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Since the COVID-19 pandemic, the IMF says it expects a 3.4 per cent economic contraction for Nigeria this year, while ratings agency Moody’s affirmed Nigeria’s B2 long-term issuer rating and senior unsecured rating and maintained a negative outlook for Nigeria. Bismarck Rewane, CEO of Financial Derivatives joins CNBC Africa for more.

Financial Derivatives CEO on how to mitigate the economic impact of COVID-19 in Nigeria

JOHANNESBURG (Reuters) &#8211; South African petrochemicals giant Sasol Ltd on Wednesday cut its guidance for synthetic fuel production and liquid fuel sales for this financial year due to a three-week nationwide lockdown linked to coronavirus.



Sasol is now expecting to produce approximately 7.3-7.4 million tons of synfuel against the previously guided range of 7.7–7.8 million tons, the company said in a statement to the Johannesburg Stock Exchange.



It is also targeting sales of 50–51 million barrels of liquid fuel for the financial year 2020, against 57–58 million barrels previously, it said.



Synfuel or synthetic fuel is a form of liquid fuel made from coal in South Africa. Sasol is the world’s biggest producer of motor fuel from coal.



South African President Cyril Ramaphosa imposed a nationwide lockdown at the end of March to contain spread of the deadly coronavirus, which has already <a href="https://www.cnbcafrica.com/news/2020/04/02/south-africa-needs-hundreds-of-thousands-of-covid-19-tests-health-minister/">infected 1,749 people in the country and killed 13</a>.



The lockdown, which prompted rating agency <a href="https://www.cnbcafrica.com/coronavirus/2020/04/03/fitch-downgrades-sa-2/">Moody’s to downgrade the country’s sovereign rating to junk</a>, crashed domestic demand at a time when the economy had already slipped into a recession.



It is projected to contract further in the current financial year.



“Sasol’s management team is in the process of proactively identifying further measures to provide an additional buffer against short-term volatility,” said the company in its statement, referring to the fall in demand in the country.



The group, which is also <a href="https://www.cnbcafrica.com/earnings/2020/03/17/sasol-plans-2bn-rights-issue/">facing high debt levels and falling oil and chemical prices</a>, said it has decided to suspend production at its inland crude oil refinery Natref from April 9.



“A decision was also made by Sasol to reduce daily production rates at our Secunda Synfuels Operations (SSO) by approximately 25%,” it said.



A further reduction in rates may be required depending on further developments in the fuels market, the company added.



However, Sasol said despite the suspension of output at the Natref refinery and lower production rates at SSO, the country’s current demand for fuels and chemicals, including sanitisers, will be met.



It had said on March 31 that its full-year results could be hit by potential disruptions to production, supply chains and construction as the coronavirus continued to spread across the world.



(Reporting by Promit Mukherjee; Editing by Jan Harvey)



This article was first published on Reuters Africa <a href="https://af.reuters.com/article/investingNews/idAFKBN21Q0WO-OZABS">https://af.reuters.com/article/investingNews/idAFKBN21Q0WO-OZABS</a> and is republished with its permission.



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

South Africa’s Sasol cuts production, sales target due to COVID-19 lockdown

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BNP Paribas has become the latest bank to downgrade its growth forecast for South Africa’s economy. The international bank now expects the economy to contract by 4 per cent versus a contraction of 1.2 per cent previously. Jeff Schultz, Senior Economist at BNP Paribas joins CNBC Africa to explain the banks change in outlook?

BNP Paribas sees 4% contraction for SA’s economy

Last Friday Moody’s, the last rating agency to rate South Africa investment grade, c<a href="https://www.cnbcafrica.com/sa-downgrade/2020/03/27/moodys-downgrades-sa-to-junk/">ut South Africa’s sovereign credit rating to junk</a>&nbsp;<a href="https://www.cnbcafrica.com/news/2020/03/27/moodys-to-cut-south-africas-sovereign-credit-rating-to-junk-economists/">in line with economists’ forecast</a>. Today Fitch further downgraded the country sending the rand plunging over 19 rand to the dollar. Below it gives its reasons&#8230;



Fitch Ratings &#8211; Hong Kong &#8211; 03 Apr 2020: Fitch Ratings has downgraded South Africa&#8217;s Long-Term Foreign-Currency Issuer Default Rating (IDR) to &#8216;BB&#8217; from &#8216;BB+&#8217;. The Outlook is Negative.



<figure class="wp-block-table"><table><thead><tr><td>RATING ACTIONS</td></tr><tr><td>ENTITY/DEBT</td><td>RATING</td><td></td><td>PRIOR</td></tr></thead><tbody><tr><td>South Africa</td><td>LT IDR</td><td>BB&nbsp;</td><td>Downgrade</td><td></td><td>BB+&nbsp;</td></tr><tr><td></td><td>ST IDR</td><td>B&nbsp;</td><td>Affirmed</td><td></td><td>B&nbsp;</td></tr><tr><td></td><td>LC LT IDR</td><td>BB&nbsp;</td><td>Downgrade</td><td></td><td>BB+&nbsp;</td></tr><tr><td></td><td>LC ST IDR</td><td>B&nbsp;</td><td>Affirmed</td><td></td><td>B&nbsp;</td></tr><tr><td></td><td>Country Ceiling</td><td>BB+&nbsp;</td><td>Downgrade</td><td></td><td>BBB-&nbsp;</td></tr><tr><td>·&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; senior unsecured</td><td>LT</td><td>BB&nbsp;</td><td>Downgrade</td><td></td><td>BB+&nbsp;</td></tr><tr><td>The RSA Sukuk No. 1 Trust</td><td></td><td>&nbsp;</td><td></td><td></td><td>&nbsp;</td></tr><tr><td>·&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; senior unsecured</td><td>LT</td><td>BB&nbsp;</td><td>Downgrade</td><td></td><td>BB+&nbsp;</td></tr></tbody></table></figure>



KEY RATING DRIVERS



The downgrade of South Africa&#8217;s ratings is a result of the lack of a clear path towards government debt stabilisation as well as the expected impact of the COVID-19 shock on public finances and growth. The Negative Outlook reflects the prospect of further significant upside pressure on government debt and additional downside risks associated with the global shock.



The COVID-19 crisis, combined with a recession in 2H19, means South Africa&#8217;s GDP is forecast to contract by 3.8% in 2020 and Fitch expects only a moderate recovery by 1.7% in 2021. The contraction primarily reflects a 21-day lockdown, during which large parts of the economy, including most mines and manufacturing plants, have ceased operating. The government has stated that the lockdown will not be extended, but many sectors may see continued significant disruption and global demand will remain adversely affected for some time.



The crisis hits public finances in an already weak situation. We expect the consolidated fiscal deficit to surge to 11.5% of GDP in FY20/21, from 6.6% in FY19/20, with a recovery to a still high 8% in FY21/22. This means that general government debt (including about 1.7% of GDP of local government debt will rise from 64.5% of GDP in FY19/20 to 80.2% in FY21/22, well above the 2019 &#8216;BB&#8217; category median of 46.5%. In its 2020 budget published in February before the full onslaught of the crisis, the government projected gross loan debt (excluding local government debt) rising from 61.6% of GDP in the fiscal year ending March 2020 (FY19/20) to 71.6% of GDP in FY22/23, with the prospect of further rises after that. However, this relied on substantial savings on public sector compensation that are now unlikely to materialise as negotiations to open the three-year public sector wage deal from 2018, which expires in April 2021, have failed to reach a breakthrough. A new wage deal next year is also unlikely to result in the projected savings.



The coronavirus shock adds further pressure on public finances. Fitch expects revenues in 2020 to contract in nominal terms for the first time since 2009 due to the economic contraction. So far fiscal measures announced by the government to alleviate the impact on the economy remain modest, and will mostly be financed from accumulated surpluses of the Unemployment Insurance Fund. However, further significant support measures, as well as additional health spending, are likely to be necessary and we expect the government will only be able to make minor spending cuts in other areas.



Additional risks stem from liabilities of non-financial (15% of GDP) and financial (2.1%) state-owned enterprises (SOEs) and guarantees for independent power producers (4%). The government has already allocated SOE support of a cumulative ZAR129 billion (2.6% of 2020 GDP) over the FY20/21 to FY22/23 planning period, but more may be needed particularly as the COVID-19 shock will weaken already poor finances of many SOEs.



The &#8216;BB&#8217; IDRs also reflect the following key rating drivers:



Despite the severe disruption in global financial markets, we do not expect acute problems in fiscal financing, partly reflecting the unusually long-average maturity of government securities (15 years) and the low share of foreign-currency debt in total debt (10%). Foreign-currency debt repayments due are at or below USD1 billion in each of the three years to FY22/23. The government is considering borrowing from international financial institutions to diversify its funding sources.



The South African Reserve Bank (SARB) has reacted to the crisis by cutting its interest rates by 100bp in March, after a 25bp rate cut in January. It has also taken extensive measures to contain stress in money markets, including the purchase of treasury bonds on secondary markets to provide liquidity to banks. Some further monetary easing is likely as SARB expects the impact of lower domestic demand will reduce inflationary pressures. It has also allowed banks to let capital ratios decline below regular thresholds. While the crisis is likely to hit asset quality, Fitch considers the risk that the sovereign will need to provide support to the banking sector as low.



The current-account deficit fell to 3.0% in 2019 but is expected to deteriorate to 4.7% of GDP in 2020 on the back of reduced global demand as well as the impact of the coronavirus-related closures on production capacity, which will not be fully offset by a substantial import compression due to the weaker exchange rate and a reduction in incomes. Net external debt, at an estimated 18.9% of GDP in 2020, is still in line with the &#8216;BB&#8217; category median.



The SARB has maintained its commitment to flexible exchange rates, letting the currency absorb the shock as investors withdrew from South Africa as from other emerging markets in March. Relatively muted exchange rate pass-through means that the inflation risks from this strategy are contained. As a result, the risks associated with the relatively modest level of international reserves and the low level of international liquidity is contained.



ESG &#8211; Governance: South Africa has an ESG Relevance Score of 5 for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption, as is the case for all sovereigns. Theses scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in our proprietary Sovereign Rating Model. South Africa has a medium WBGI ranking at the 57th percentile, reflecting relatively institution and well-entrenched democratic processes. However, exceptionally high inequality could lead to long-term challenges to social stability and complicates the government&#8217;s efforts to accelerate economic growth and consolidate public finances in an environment of rising calls for improving public services.



SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO)



Fitch&#8217;s proprietary SRM assigns South Africa a score equivalent to a rating of &#8216;BBB-&#8216; on the Long-Term Foreign-Currency (LT FC) IDR scale.



Fitch&#8217;s sovereign rating committee adjusted the output from the SRM to arrive at the final LT FC IDR by applying its QO, relative to rated peers, as follows:



&#8211; Macroeconomic Performance, Policies and Prospects: -1 notch, to reflect South Africa&#8217;s weak growth prospects relative to the &#8216;BB&#8217; and &#8216;BBB&#8217; category medians and to population growth, with important implications for public finances and risks to social stability.



&#8211; Public Finances: -1 notch, to reflect the continued upward trend in government/debt to GDP exacerbated by the COVID-19 shock and the absence of a clear medium-term plan for debt stabilisation, as well as high contingent-liabilities notably related to state-owned enterprises, such as Eskom.



Fitch&#8217;s SRM is the agency&#8217;s proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR. Fitch&#8217;s QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.



RATING SENSITIVITIES



Factors that could, individually or collectively, lead to negative rating action/downgrade:



&#8211; A continued rise in government debt/GDP and failure to formulate a clear and credible path towards stabilising the government debt/GDP ratio.



&#8211; A further deterioration in South Africa&#8217;s trend GDP growth rate.



Factors that could, individually or collectively, lead to positive rating action/upgrade:



&#8211; Formulation of a clear and credible path towards stabilising the government debt/GDP ratio over the medium term.



&#8211; A strengthening in trend GDP growth.

Fitch Ratings

Rand hits record low, goes over 19 to dollar as Fitch downgrades SA further into junk status

New York, March 31, 2020 &#8212; Moody&#8217;s Investors Service (&#8220;Moody&#8217;s&#8221;) has today placed Angola Government&#8217;s B3 long-term issuer ratings and senior unsecured rating and its (P)B3 senior unsecured MTN rating under review for downgrade. The short-term issuer rating is affirmed at Not Prime (NP).



The decision to place Angola&#8217;s ratings on review for downgrade is prompted by the magnitude of the shock from the sharp drop in oil prices and an acute tightening in global financing conditions on Angola&#8217;s already weak public finances and external position, and elevated government gross borrowing requirements. Weak governance, notwithstanding a number of reforms implemented in recent years, undermines the government&#8217;s capacity to respond to this shock and is a driver of this rating action.



The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. For Angola, the shock mainly transmits through a further weakening in the currency that raises the debt burden and debt service; a significant drop in revenues that is likely to prevent the government from pursuing its debt management strategy of paying down short-term debt and reducing rollover risk; and pressure on an already fragile balance of payments.



The review period will allow Moody&#8217;s to assess the overall policy response to the shock and the capacity of the authorities to manage: 1) the additional stress on public finances and the government&#8217;s balance sheet driven by the significant loss of oil-related revenues and a potential further depreciation of the currency; 2) the severity of the increase in external vulnerability given the expected sharp drop in oil export receipts putting pressure on foreign currency reserves; 3) the rising risks associated to large domestic and external debt service payments in a currently dislocated credit market.



Concurrently, all Angola&#8217;s country risk ceilings remain unchanged: Foreign Currency bond ceiling at B2, Foreign Currency deposit ceiling at Caa1, and Local Currency bond and deposit ceilings at Ba3.



RATINGS RATIONALE



RATIONALE FOR INITIATING A REVIEW FOR DOWNGRADE ON ANGOLA&#8217;S B3 RATINGS



As a result of the oil price fall in the face of depressed oil demand and a slow supply response, Moody&#8217;s now assumes that oil prices will average US$40-45 per barrel in 2020, and US$50-55 by 2021, around $20 and $10 below previous expectations in each year.



As a large oil exporter, Angola heavily relies on the oil sector as a source of government revenue (62% of total revenue in 2019) and exports (96%). Such a fall in oil prices heightens the pressure on Angola&#8217;s already weak fiscal and external metrics.



ANGOLA&#8217;S WEAK CREDIT METRICS ARE LIKELY TO DETERIORATE FURTHER, TO AN EXTENT PARTLY DETERMINED BY THE GOVERNMENT&#8217;S CAPACITY TO RESPOND



Angola&#8217;s credit profile is weakened by the oil price shock which negatively affects the government&#8217;s balance sheet and the country&#8217;s external position, through a significant loss of government revenue and export proceeds respectively. Also, the Covid-19 related spending to prevent the spread of the virus throughout the country is expected to further aggravate the fiscal deficit.



Already, Angola&#8217;s fiscal and external metrics are very weak. General government debt increased to an estimated 100.5% of GDP in 2019, from 81% in 2018, and debt-to-revenue was around 500% from 371% respectively. Similarly interest payment-to-revenue exceeded 25% in 2019 against 20.7% a year before. On the external side, vulnerability relates to low net foreign exchange reserves at $11.8 billion at the end of 2019, covering around 6 months of imports of goods and services and external debt amounting to about twice the level of current account receipts this year, according to Moody&#8217;s estimates.



Angola is unlikely to be able to significantly increase its oil production that has been in a secular decline for the last 4 years to offset the price drop. Moody&#8217;s estimates that a $10/barrel decrease in oil price leads to a $2$2.5 billion loss in government revenue (around 3% of 2019 GDP) and a $5 billion fall in exports receipts.



The 2020 budget which was designed to post a small surplus (0.8% of GDP), was passed with a $55/barrel oil price assumption. It would have contributed to a slightly positive balance of payments after International Financial Institutions&#8217; (IFIs) disbursements of concessional loans. As a result of the price fall, Angola&#8217;s fiscal and external accounts will be in deficit, raising pressure on the exchange rate and foreign exchange reserves and incentivizing economic transactions in the parallel exchange rate market.



A budget no longer likely to be in surplus and further pressure on the currency are likely to raise the already very high debt burden. In turn, the government&#8217;s borrowing requirements are likely to increase again in 2020 having fallen to 15% of GDP in 2019 (including clearance of arrears to goods and services suppliers), at a time when international and possibly domestic financing comes at very high costs. Given the current dislocation in credit markets, it will be increasingly challenging for the government to secure financing at affordable costs. Previous objectives, including an ongoing debt management strategy aimed at repaying short-term debt and lengthening its debt maturity and the maintenance of net international reserves above $10 billion have also become far less achievable.



The impact of the oil price shock will be attenuated by the fact that the government posted a small deficit on the budget estimated at 0.3% of GDP and a current account surplus estimated at 4% of GDP in 2019. This is due to the implementation of a vast array of reforms, and strong consolidation efforts under the $3.7 billion and 3-year IMF program, approved in December 2018. But during this transition period, where the authorities, with the support of the IFIs, are trying to spur the private sector, restore macroeconomic stability with a more flexible exchange rate and sounder public finances, having cleared large amount of arrears and improved the debt structure, Angola&#8217;s credit metrics remain highly vulnerable to shocks.



The review period, which may extend beyond the usual three-month horizon, will allow Moody&#8217;s to assess the credibility and sustainability of the government&#8217;s plans and its ability to mitigate the impact of significantly lower oil prices on Angola&#8217;s credit standing.



ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS



Environmental considerations are not material for Angola&#8217;s rating.



As an oil producer and exporter, Angola&#8217;s environmental risks derive from carbon transition. Angola&#8217;s credit profile would face downward pressure in a scenario of rapid global transition to lower reliance on hydrocarbons that would depress global hydrocarbon demand and prices. However, in light of the measures against climate change taken so far, this is not Moody&#8217;s baseline.



Social considerations influence Angola&#8217;s credit profile, given very low wealth levels and high levels of poverty. GDP per capita, at $6,851 on a PPP basis as of 2018, remains low. Additionally, the UN&#8217;s Human Development Index for 2018 ranked Angola 147 out of 189 countries. Social indicators have improved from a very low level since the end of the civil war in 2002, but income inequalities remain very high despite the oil wealth of the country. Since the oil shock and the election of President Lourenco, the authorities have been implementing an ambitious reform agenda despite the political cost and inherent execution risks. Risk of social unrest remains, especially stemming from jobless young people.



Governance considerations are material to Angola&#8217;s credit profile and are a driver of this action. Data transparency and availability are areas of improvements, as well as institutional capacities that remain limited. For example, Angolan banks lost their dollar-correspondent banking relationships in 2016 because of their failure to meet international standards relating to shareholder structures and money laundering, resulting in increased transaction costs and delays. There are also significant weaknesses related to the management of public finance, illustrated by the level of arrears accumulated over the last few years.



FACTORS THAT WOULD LEAD TO A DOWNGRADE OF THE RATING



Moody&#8217;s would downgrade the rating if the review were to conclude that Angola&#8217;s government was unlikely to be able to alleviate the damage to its balance sheet and the subsequent rise in liquidity risk resulting in a credit profile no longer consistent with a B3 rating. Increasing risks of a balance-of-payment crisis would also likely lead to a downgrade.



WHAT COULD LEAD TO CONFIRMATION OF THE RATING AT THE CURRENT LEVEL



Moody&#8217;s would confirm the rating if the review were to conclude that a credible fiscal and economic policy response from the government will efficiently manage the risks arising from the upward trend in government debt, government liquidity risks, and increased pressure on the exchange rate, leaving Angola&#8217;s credit profile consistent with a B3 rating.



GDP per capita (PPP basis, US$): 6,851 (2018 Actual) (also known as Per Capita Income)



Real GDP growth (% change): -1.2% (2018 Actual) (also known as GDP Growth)



Inflation Rate (CPI, % change Dec/Dec): 18.6% (2018 Actual)



Gen. Gov. Financial Balance/GDP: 2.2% (2018 Actual) (also known as Fiscal Balance)



Current Account Balance/GDP: 7% (2018 Actual) (also known as External Balance)



External debt/GDP: 44.4% (2018 Actual)



Economic resiliency: b2



Default history: No default events (on bonds or loans) have been recorded since 1983.



On 26 March 2020, a rating committee was called to discuss the rating of Angola, Government of. The main points raised during the discussion were: The issuer&#8217;s economic fundamentals, including its economic strength, have materially decreased. The issuer&#8217;s fiscal or financial strength, including its debt profile, has materially decreased. The issuer&#8217;s susceptibility to event risks has not materially changed.



The principal methodology used in these ratings was Sovereign Ratings Methodology published in November 2019 and available at <a href="https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631">https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631</a> . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.



The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.



The local market analyst for this rating is Aurelien Mali, +971 (423) 795-37.



REGULATORY DISCLOSURES



For further specification of Moody&#8217;s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody&#8217;s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx? docid=PBC_79004.



For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody&#8217;s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider&#8217;s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.



For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.



The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.



These ratings are solicited. Please refer to Moody&#8217;s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.



Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.



Moody&#8217;s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at <a href="https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569">https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569</a> .



At least one ESG consideration was material to the credit rating outcome announced and described above.



The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody&#8217;s affiliates outside the EU and is endorsed by Moody&#8217;s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody&#8217;s office that issued the credit rating is available on www.moodys.com.



Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody&#8217;s legal entity that has issued the rating.



Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.



Samar Maziad



Vice President &#8211; Senior Analyst



Sovereign Risk Group



Moody&#8217;s Investors Service, Inc.



250 Greenwich Street



New York, NY 10007



U.S.A.



JOURNALISTS: 1 212 553 0376



Client Service: 1 212 553 1653



Marie Diron



MD &#8211; Sovereign Risk



Sovereign Risk Group



JOURNALISTS: 852 3758 1350



Client Service: 852 3551 3077



Releasing Office:



Moody&#8217;s Investors Service, Inc.



250 Greenwich Street



New York, NY 10007



U.S.A.



JOURNALISTS: 1 212 553 0376



Client Service: 1 212 553 1653

Moody’s places Angola’s B3 ratings on review for downgrade

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



 KEY POINTS



<ul><li>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.</li><li>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.</li><li>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.</li></ul>



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



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.



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.



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.



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.


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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.



“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.”



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.



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.



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



“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.



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.



“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.



“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.”



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



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.



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.



<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>



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">City Press</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.



“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.



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.



“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.

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

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The richest man in South Africa has stepped in to offer a lifeline to small businesses in these difficult times. Nicky Oppenheimer – worth $7.5 billion dollars as we speak according to Forbes – has pledged a billion rand to fight COVID-19 and help out employees in SMME’s. It will transfer funds to employees through interest free loans and also plans to stimulate economic growth after the crisis. Nicky Oppenheimer joins CNBC Africa for more.

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