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The rand is steady after a strong rally yesterday, triggered the appointment of Tito Mboweni as South Africa&#8217;s new finance Minister. Mboweni, the former Governor of South Africa&#8217;s Reserve Bank replaced Nhlanhla Nene, who resigned after misleading the public about his relations with the scandal hit Gupta family. This is what the current SARB Governor, Lesetja Kganyago, had to say on Mboweni.

Lesetja Kganyago on Mboweni’s appointment, expectations for Moody’s review

JOHANNESBURG (Reuters) &#8211; Moody’s stable outlook on South Africa’s credit rating means there is little chance of a downgrade this year, the ratings agency said on Thursday, but warned that a commitment to fiscal consolidation would be key to maintaining its rating.
The agency, the last of the top three ratings firms to have Pretoria’s long-term foreign-currency debt in investment grade, however said a recovery in South Africa’s economic growth will be slow and less than the Treasury’s estimate of 1.5 percent for 2018 after a surprise contraction in the first two quarters.
South Africa entered recession for the first time since 2009, data showed last week, undermining President Cyril Ramaphosa’s efforts to revive the economy after years of stagnation under former president Jacob Zuma.
Lucie Villa, Moody’s lead analyst for South Africa, said the rising share of government revenue that South Africa spends on debt servicing was a concern for Moody’s, but that she expected some fiscal adjustment in the October budget statement.
“Growth is going to be below 1 percent, to what extent it’s difficult to say,” Villa told the agency’s annual Sub-Saharan Africa conference, referring to this calendar year.
“South Africa has a stable outlook, &#8230; there is little chance of a rating action,” Villa said, in response to a question about whether Moody’s would downgrade the country’s sovereign rating at a review scheduled for next month.
Moody’s has previously said the slide into recession would exacerbate fiscal and monetary challenges. It said weaker-than-expected economic data was “credit negative”.
Villa said two ratings strengths for South Africa was that its government debt had a long maturity and that relatively little of the debt was foreign-currency denominated.
“It’s very important what announcement will be made (at the October budget statement), &#8230; what we think is going to be critical is the wage bill, tax revenues,” she said.
Villa said plans by the ruling African National Congress (ANC) to nationalise the Reserve Bank were not “rating-relevant,” assuming that the bank’s mandate would not be affected.
The central bank has said any change of ownership would not affect its mandate or independence.
Africa’s most developed economy needs faster economic growth if it is to reduce high unemployment &#8211; currently at 27 percent &#8211; and alleviate poverty, analysts say.
Unemployment is a hot-button issue ahead of national elections in 2019, and the ANC has made repeated pledges that things will improve.
($1 = 14.8287 rand)
Writing by James Macharia

What are the chances of a downgrade for South Africa’s credit rating? Here’s what Moody’s has to say…

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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.

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

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Douglas Rowlings, Senior Corporate Analyst at Moody’s joins CNBC Africa with Moody’s report on SA mining companies and rand volatility.

What a weak rand means for SA’s mining stocks

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.
“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.
Africa’s biggest wireless phones group said on Tuesday the Nigerian Attorney General was seeking $2 billion in taxes incurred over the last decade.
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.
Reporting by Tiisetso Motsoeneng; Editing by James Macharia

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

JOHANNESBURG/PRETORIA (Reuters) &#8211; South Africa will soon recover from recession, President Cyril Ramaphosa said on Thursday in his first reaction to news that undermines his effort to revive the economy and attract investment after a decade of stagnation.
Ramaphosa staked his reputation on economic revival when he took over in February from Jacob Zuma, whose tenure was plagued by scandal, and investors welcomed his accession to power in part due to his strong ties to the business community.
Ratings agency Moody’s said the slide into recession in the second quarter would exacerbate fiscal and monetary challenges. It said weaker-than-expected economic data was “credit negative”.
Data on Thursday showed the current account deficit narrowed to 3.3 percent of gross domestic product in the second quarter, from a revised 4.6 percent in the first quarter. The rand extended its gains to more than 1 percent stronger on the news.
The deficit figure was slightly smaller than the 3.4 percent deficit analysts polled by Reuters had expected, a much-needed boost for after data this week showed the economy slipped into recession for the first time since 2009.
In his first comments on the recession, Ramaphosa said the setbacks were temporary.
“All these things that are happening now are transitional issues that are going to pass,” Ramaphosa was quoted by local news agency Eyewitness News as saying.
“I will be meeting with the business community soon, so that we rally everyone together and pull our country out of the situation that we are in,” added Ramaphosa, who was attending a China-Africa summit in Beijing when the data was released.
South Africa needs faster economic growth to reduce its 27 percent unemployment rate and alleviate poverty and inequality, both of which stoke instability.
The ruling African National Congress (ANC) has made repeated pledges to improve the economy. Unemployment is a key concern for voters ahead of elections next year.
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MOODY’S WARNING
The rand has slumped as much as 5 percent against the dollar this week and government bonds have sold off steeply, also hurt by the turmoil on Turkish and Argentinian financial markets.
“This weaker-than-expected economic performance will exacerbate fiscal and monetary challenges, a credit negative,” Moody’s said in a statement on the weaker GDP figures.
The agency is the last of the “big three” international agencies to rate South Africa’s long-term foreign-currency debt investment grade.
While releasing the current account data, the Reserve Bank, which meets on Sept. 20 to decide on interest rates, said the improved current and trade account figures were due to higher value and volume of merchandised exports.
“South Africa’s terms of trade (including gold) improved in the second quarter of 2018 as the rand price of exports, including gold, increased at a faster pace than that of imports,” the central bank said in a statement.
Several foreign banks have slashed their growth forecasts for South Africa to less than 1 percent this year.
“Moody’s has pointed out that the task of fiscal consolidation is going to get harder, but I don’t think they’ll change our credit rating yet,” said portfolio manager Wayne McCurrie at First National Bank.
“A narrow current account helps. Any good news in this environment is really good news.”
Writing by James Macharia; Editing by Matthew Mpoke Bigg

Here’s what South Africa’s president Ramaphosa has to say about the country slipping into recession

London, 15 August 2018 &#8212; The pace of South Africa&#8217;s fiscal consolidation will be slower than government forecasts as weaker than expected economic growth and a rising public sector wage bill act as fiscal headwinds, Moody&#8217;s Investors Service said a report today. Despite the slower pace of fiscal consolidation, medium-term deficit targets remain within reach and, if met, will support a stabilization of debt levels and reinforce Moody&#8217;s assessment of the sovereign&#8217;s fiscal and institutional strengths.
The report, &#8220;Government of South Africa: Fiscal slippages likely this year, but medium-term targets remain within reach&#8221;, is now available on www.moodys.com. Moody&#8217;s subscribers can access this report via the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.
&#8220;We expect a slower pace fiscal consolidation than the Government of South Africa is forecasting,&#8221; said Lucie Villa, a Moody&#8217;s Vice President &#8212; Senior Credit Officer and co-author of the report. &#8220;Growth this year is expected to be lower than the government&#8217;s own estimates, weighing on tax revenues, while the public sector wage agreement in June also brings extra, unbudgeted costs.&#8221;
Moody&#8217;s expects a fiscal deficit of around 4.0% of GDP in 2018-19, implying a 0.4 percentage point of GDP shortfall from government targets. However, Moody&#8217;s expects the government to hit its 3.5% fiscal deficit target by 2020-21, with debt likely to stabilize at around 56% of GDP.
Moody&#8217;s expects that near-term fiscal adjustments will be made on the spending side based on the government&#8217;s record of operating within spending ceilings and undershooting revenue targets.
Improved tax collection led by the South African Revenue Service will allow revenue to take more prominence in the longer term fiscal consolidation path.
Rising interest costs in the context of investors taking a more risk averse stance towards emerging markets are a main risk to Moody&#8217;s fiscal forecasts, together with potential support to state-owned-enterprises.

South African rand dives as Moody’s warns on fiscal deficit, what you need to know…

By Moody&#8217;s Investors Service
London, 23 March 2018 &#8212; Moody&#8217;s Investors Service today confirmed the long-term issuer and senior unsecured ratings of the Government of South Africa at Baa3, as well as the (P)Baa3 senior unsecured shelf and senior unsecured MTN program ratings. The outlook was changed to stable. The rating actions conclude the review for downgrade that commenced on 24 November 2017.
The confirmation of South Africa&#8217;s ratings reflects Moody&#8217;s view that the previous weakening of South Africa&#8217;s institutions will gradually reverse under a more transparent and predictable policy framework. The recovery of the country&#8217;s institutions will, if sustained, gradually support a corresponding recovery in its economy, along with a stabilization of fiscal strength.
The stable outlook reflects a careful balance of risks. The new administration faces equally significant opportunities and challenges. Steady progress in meeting the objectives set out in the President&#8217;s recent State of the Nation Address (SONA) will be needed if the recovery in confidence that will be essential for the country&#8217;s economic and fiscal prospects is to be sustained. Success offers the prospect of a virtuous circle of economic recovery, fiscal consolidation and rising social cohesion. But the political, policy and practical challenges of meeting diverse economic, social and fiscal objectives cannot be underestimated. Failure, at least as perceived by investors or voters, could lead to a further cycle of eroding economic, fiscal and institutional strength.
In a related decision, Moody&#8217;s confirmed the government&#8217;s other short-term rating at (P)Prime-3. Moody&#8217;s also confirmed the Baa3 backed senior unsecured debt issued by ZAR Sovereign Capital Fund Propriety Limited, a special purpose vehicle whose debt issuance is ultimately the obligation of the South African government, and changed the outlook to stable.
South Africa&#8217;s long-term local-currency bond and bank deposits ceilings remain unchanged at A2, and the long-term and short-term foreign-currency bond ceilings are also unchanged at A3/Prime-2. The long-term foreign-currency bank deposits ceilings remain at Baa3, while the short-term foreign-currency bank deposits ceiling remains at Prime-3.
RATINGS RATIONALE
RATIONALE FOR CONFIRMING THE Baa3 AND (P)Prime-3 RATINGS
FIRST DRIVER &#8212; HALT IN THE DETERIORATION OF SOUTH AFRICA&#8217;S INSTITUTIONAL FRAMEWORK, WITH LONG-STANDING STRENGTHS PRESERVED AND SOME REBUILDING OCCURRING
The recent change in political leadership appears to have halted the gradual erosion of the strength of South Africa&#8217;s institutions. With changes in governance, a number of key institutions, including the Treasury, the South African Revenue Service (SARS) and key State-Owned Enterprises (SOEs) have embarked on the recovery of their earlier strength.
The technical strength and independence of South Africa&#8217;s media, civil society and institutions, including key ministries, the Reserve Bank and the judiciary, have been critical in sustaining the country&#8217;s credit profile over time. However, recent years have seen a gradual erosion in the strength of some key institutions, with a correspondingly negative impact on economic and fiscal strength and on the effectiveness of policymaking. High and rising concerns regarding endemic high-level corruption, &#8216;state capture&#8217; and pressures on the mandate and independence of key policy-making institutions such as the Reserve Bank have materially damaged economic confidence and effective policy-making, exacerbating the erosion in the government&#8217;s balance sheet.
Examples of the erosion of the government balance sheet are diverse, but include the increasingly entrenched financial challenges facing key SOEs, the decline in the capacity of SARS to collect revenue for the government and, most recently, the absence of any clear policy direction in the Medium Term Budget Policy Statement (MTPBS) published in October 2017, a key driver of Moody&#8217;s recent review of South Africa&#8217;s credit rating.
The recent change in political leadership offers a real prospect of a decisive reversal in that erosion of strength. While it is still very early days, the speed with which the President has moved to replace the leadership in key institutions, including the Ministries of Finance, Mineral Resources and Public Enterprises and most recently in SARS, illustrates the resolve to address the problems of the recent past and to set the state, society and the economy on a new and positive path. At the same time, the ambitious reform agenda set out in the SONA illustrates an acknowledgement of, and the intent to address, the range and depth of South Africa&#8217;s economic, fiscal and social problems.
SECOND DRIVER &#8212; IMPROVED GROWTH PERFORMANCE AND PROSPECTS
The change in political leadership comes in parallel with growing signs of cyclical, and perhaps structural, improvements in economic growth.
2017 was the second year in a row when growth outturned higher than initially forecast. Even if the improvement was to a large extent cyclical, driven by external demand and by one-off factors such as the easing of the drought, the prospect of higher than expected growth this year and next allows the government some additional fiscal and political space in which to pursue reforms.
Moreover, the recovery in growth has been mirrored more recently by a sharp recovery in business and consumer confidence, illustrated both in surveys, and by other indicators such as the recent recovery in the value of the rand. While confidence can dissipate quickly, if sustained through further actions, it offers the prospect of rising levels of investment in South Africa&#8217;s economy and enhanced medium-term growth.
The government recognizes the need to support improving confidence with steady progress on structural reform, including in the areas of mining, energy, the SOE sector and competition. Future growth prospects will inevitably reflect its progress in those areas. For now, though, the enhanced political and policy certainty ushered in by the recent changes offers some confidence that renewed business confidence will be sustained.
THIRD DRIVER &#8212; FISCAL ADJUSTMENT PLANS THAT WOULD STABILIZE AND EVENTUALLY REDUCE THE DEBT BURDEN
In marked contrast to last October&#8217;s MTPBS, the 2018 budget outlines a clear strategy for addressing rising fiscal pressures, with a front loaded, revenue-driven, fiscal adjustment, supported by material cuts in expenditures in this and subsequent years needed to finance, inter alia, rising expenditure on education.
The recently-announced one percentage point increase in VAT will broaden the fiscal policy response beyond the expenditure controls on which the government has increasingly relied in recent years. However, its significance goes beyond the moderate increase in revenues (of around Rand 22 billion) that the increase will allow. As the first increase in indirect taxes for over two decades, the change signals a marked, and credit positive, policy shift.
Overall, Moody&#8217;s now expects the government&#8217;s debt burden to stabilize at around 55% of GDP over the 2018-2020 period.
Significant uncertainties remain, and risks are tilted to the upside. Over the near-term, the departmental cuts required to support (inter alia) the increased spending on education announced under the previous Presidency will test policymakers and administrators alike. Hard political choices will arise; spending pressures from, for example, public wages and the cost of higher education, will persist. The still-fragile state of many SOEs, in particular Eskom Holdings SOC Limited, poses material contingent liabilities.
Set against that, a continued recovery in growth would boost revenues and provide further policy space.
RATIONALE FOR A STABLE OUTLOOK
The stable outlook balances upward and downward pressures.
Marshalled and developed by strong institutions pursuing an effective set of reforms and policies, South Africa&#8217;s economy has significant growth potential. A combination of growth, expenditure restraint and further improvements in the breadth of the revenue base and in collection capacity should, if pursued effectively, lead to the debt trajectory stabilizing in the next two to three years and ultimately reversing. Incoming policymakers have emphasized their commitment to addressing risks to the debt trajectory growth emanating from the SOE sector.
However, the authority and capacity of the incoming administration remains to be fully tested. The divisions within the ANC, and more broadly within society, as illustrated by the increasingly pluralistic political environment, will present policymakers with diverse and sometimes conflicting political priorities which will create policy uncertainty. The policy agenda itself is broad and challenging, and contains elements that have the potential to create tensions within the administration and society.
Two immediate examples are the still-to-be-agreed Mining Charter and the land appropriation without compensation initiative. On the former, the President has emphasized his intention to balance the conflicting priorities of industry, unions and the broader goal to encourage black economic empowerment of the industrial base. Satisfactory progress in this area will be an important test of the ANC&#8217;s authority and ability to reach the compromises needed to push through a broader reform agenda. Land appropriation is a long-standing objective of the ANC which has, for a number of reasons, assumed a higher profile in recent years. It remains unclear how the new government will pursue its objectives in this area, or what impact that will have on agricultural production and security. How the government acts will also provide important insights into how it plans to balance nearer-term economic objectives (to sustain confidence and promote investment) against longer-term social and economic objectives (to address unemployment, inequality and poverty).
In short, the outlook reflects two possible visions for the sovereign credit ratings: the first is a positive one in which a virtuous cycle emerges of economic growth, fiscal prudence and mounting social cohesion. The second is a more negative one in which policy ineffectiveness continues to undermine confidence, growth and social cohesion, with inevitable consequences for the government&#8217;s balance sheet.
WHAT COULD CHANGE THE RATING &#8212; UP
Future rating actions will most likely be driven by the effectiveness with which the government is able to address the institutional problems of the recent past in the pursuit of its economic and fiscal reform agenda.
The successful implementation of structural reforms to raise potential growth as well as stabilize and eventually reduce the debt burden, including through reforms to the SOE sector which reduce contingent liabilities, would put upward pressure on the rating. In particular, reforms resulting in higher savings and investment rates and broad-based, sustainable, job-creating growth, alongside rebuilding of fiscal buffers would provide positive momentum to the rating. In reaching such a conclusion, Moody&#8217;s would consider the longer-term ramifications of near-term fiscal and economic outcomes, as well as progress in enacting reform measures and resolving long-standing structural issues, including those relating to mining and agriculture.
WHAT COULD CHANGE THE RATING &#8212; DOWN
Conversely, South Africa&#8217;s ratings would be placed on negative outlook or review for downgrade, and eventually downgraded if it were to become clear that the government&#8217;s commitment to, or capacity to engineer, revived growth and debt stabilization were to falter. In reaching such a judgment, Moody&#8217;s would consider the government&#8217;s success in delivering planned structural reforms in the period between now and the 2019 Presidential elections, and to the impact of its actions or inaction on the investment climate and on near-term and potential growth. Negative developments in fiscal policy would also weigh on the rating. This includes the potential for SOE sector risks crystallizing in a manner which raised the government debt burden and put it on a higher trajectory.
GDP per capita (PPP basis, US$): 12,321 (2016 Actual) (also known as Per Capita Income)
Real GDP growth (% change): 0.3% (2016 Actual) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 7.1% (2016 Actual)
Gen. Gov. Financial Balance/GDP: -2.5% (2016 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -3.2% (2016 Actual) (also known as External Balance)
External debt/GDP: 52% (2016 actual)
Level of economic development: Moderate level of economic resilience
Default history: At least one default event (on bonds and/or loans) has been recorded since 1983.
On 20 March 2018, a rating committee was called to discuss the rating of the South Africa, Government of. The main points raised during the discussion were: The issuer&#8217;s economic fundamentals, including its economic strength, have materially increased. The issuer&#8217;s institutional strength/framework, have materially increased. The issuer&#8217;s governance and/or management, have materially increased.
The principal methodology used in these ratings was Sovereign Bond Ratings published in December 2016. 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.

Moody’s gives SA reprieve, keeps rating one notch above junk

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Joon Chong, Partner at Webber Wentzel’s Tax Practice joins CNBC Africa to discuss the Presidency’s decisions to suspend the controversial head of the South African Revenue Services, Tom Moyane.

Will Tom Moyane’s suspension avert SA downgrade from Moody’s?

South Africa’s rand weakened against the dollar early on Monday as caution gripped investors ahead of a Moody’s credit rating review announcement and the U.S. Federal Reserve’s interest rates decision due later in the week.
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At 0645 GMT, the rand traded at 12.0375 per dollar, 0.44 percent weaker than its New York close on Friday.
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Moody’s, the only major agency with an investment grade rating on South African debt but with a downgrade review, is scheduled to make a decision on Friday.
Globally, the U.S. Federal Reserve is expected to hike interest rates on Wednesday and perhaps signal that as many as three more lie in store for the rest of the year. [MKTS/GLOB]
“With a mid-week public holiday locally, as well as FOMC on Wednesday and the Moody’s announcement on Friday the markets are unlikely to display much enthusiasm in their positioning and liquidity is likely to be tested throughout,” Nedbank analysts wrote in a note.
Local focus will also be on February consumer prices inflation data and fourth-quarter 2017 current account numbers due on Tuesday.
In fixed income, the yield for the benchmark government bond due in 2026 was up 2.5 basis points at 8.17 percent.
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Reporting by Nomvelo Chalumbira; Editing by Olivia Kumwenda-Mtambo and Subhranshu Sahu
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South African rand weaker, Moody’s rating decision awaited

Tanzania criticised Moody’s decision to impose a negative outlook on the country’s first international credit rating, saying the agency’s concerns about the business climate were misleading.
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Moody’s on Friday assigned Tanzania a “B1” credit rating with a negative outlook, the first time the country has been given a rating by any of the big international agencies.
Moody’s said the negative outlook was justified by unpredictable policymaking, which could affect economic growth and the ability to attract foreign investment.
The government in the East African nation has tussled with mining and energy firms, as it sought to renegotiate their contracts, alarming foreign investors.
“Tanzania rejects the negative outlook on the credit rating. The government expected Moody’s to sit down with the government to discuss any queries they may have after their review,” Ben Mwaipaja, a Ministry of Finance and Planning spokesperson, said on Monday.
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He said the government had taken several steps to improve the business environment, without offering details.
Tanzania has prioritised infrastructure investment as part of a five-year national development plan with a goal of achieving middle income status by 2025.
Moody’s said Tanzania’s debt could rise to 43 percent of GDP in 2020 from 40.2 percent last year. Nevertheless, the agency expects the debt burden to remain below that of regional peers.
“The average maturity of Tanzania’s debt is relatively long because of a large share of multilateral, concessional external borrowing, which helps partly offset a very low revenue base and supports debt affordability,” the agency said in a statement.
Analysts said a “B1” rating, even with a negative outlook, was decent, given worsening debt profiles across Africa.
“It’s a similar rating to Ethiopia, better than Rwanda, better than Kenya. So as a debut issuer, it’s a decent rating,” Charles Robertson, chief economist at London-based frontier and emerging markets investment bank Renaissance Capital, said.
“Given Tanzania’s low per capita GDP, its a good rating.”
In 2016, Tanzania said it wanted to issue a debut Eurobond to finance infrastructure projects, but it has delayed the process due to a lack of a credit rating.
Mwaipaja did not comment on the plan to issue a Eurobond.
Robertson said the Moody’s rating suggested a Eurobond might be issued this year and foreign investors who like diversification would be interested in Tanzania.
“Investors might give Tanzania lower borrowing costs than Kenya, based on this rating,” he said, referring to Kenya’s issue of dollar bonds last month.
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Reporting by Fumbuka Ng&#8217;wanakilala and Omar Mohammed; Editing by Duncan Miriri and Susan Fenton
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Tanzania criticises Moody’s for negative rating outlook

South African petrochemicals group Sasol said on Monday that ratings agency Moody’s has decoupled the company from the sovereign rating, which would allow it to have higher ratings and borrow more cheaply than the government.
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Sasol chief financial officer Paul Victor made the comments during the presentation of the company’s interim results which showed a 17 percent increase in earnings, boosted by higher oil prices. Moody’s is currently the only major ratings agency that ranks South African debt as investment grade.
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Reporting by Tanisha Heiberg; Writing by Ed Stoddard; Editing by James Macharia
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Sasol says Moody’s has decoupled firm from South Africa sovereign rating

Ratings agencies Fitch, Moody’s and S&amp;P Global all applauded South Africa’s budget where the Treasury raised value added tax for the first time in over two decades and announced plans to dramatically reduce its debt, a senior official said on Thursday.
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“We engaged with Fitch and Moody’s and S&amp;P. Their preliminary view was that we did well,” Director General Dondo Mogajane told a parliamentary committee, saying the department had spoken telephonically to the agencies after the budget speech was delivered on Wednesday.
Fitch and S&amp;P’s cut the country’s local debt rating to subinvestment in 2017, while Moody’s is due to announce a decision in March.
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Reporting by Mfuneko Toyana; Editing by James Macharia
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Ratings agencies applaud South Africa’s budget: Treasury

By  Old Mutual Investment Group’s Head of Economic Research, Johann Els
The shocking abandonment of fiscal consolidation as a key policy anchor in the October 2017 Medium Term Budget Policy Statement (MTBPS) led to the downgrade to sub investment grade by S&amp;P and the credit watch by Moody’s.
Since then, however, the accelerated speed at which events have moved – mostly in a positive direction – has been encouraging, despite being unexpected. Considering that newly sworn in President Ramaphosa has strong business experience and was heavily involved in the creation of the acclaimed National Development Plan (NDP), it is more likely now that the ANC will return to their more pragmatic policies.
It is against this backdrop that Old Mutual Investment Group’s Head of Economic Research, Johann Els, believes the upcoming budget will need to be a lot tougher than what South Africa has seen in the recent past. “While we do expect a somewhat better economic environment during 2018, which should marginally improve the fiscal numbers, a clear return to fiscal consolidation is needed. This should include both revenue and expenditure measures to speed up narrowing of the budget deficit in a more sustainable manner in order to stabilise the debt ratio.”
Els warns, however, that this will not be easy and will likely be painful to most taxpayers. “Minister Gigaba has mentioned in parliament, following the MTBPS fiasco, that an extra R30bn in taxes would need to be raised in this Budget. While a tighter fiscal stance is clearly needed, it would also need to be balanced with the need to not hurt economic growth too much – a key requirement by Moody’s.
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“Thus, significant tax hikes are needed and would likely be concentrated at the top end of the income spectrum,” explains Els.
He outlines a number of options by which this could be done. “Fiscal drag, i.e. not making allowance for inflation pushing taxpayers into higher tax brackets, could raise R10bn, and an additional top marginal tax rate could result in a further R4-R5bn. R16bn could be raised by reducing tax expenditures via levying VAT on petrol (or alternatively a hefty fuel levy hike), while eliminating medical tax credits could raise R18bn (or R4-5bn if only for higher income groups). Since a wealth tax will probably not yet be introduced, capital gains tax and dividends tax rates could be raised again, along with normal excise and sin tax hikes, as well as the sugar tax.”
The big positive, however, would be a possible hike to the VAT rate, says Els. “While government has always said they will keep a VAT hike for when National Health Insurance is introduced, circumstances dictate that it might be necessary to consider this now. I do think that the probability of a VAT hike is higher now than over the past few years.
“A 1% hike in the VAT rate from 14% to 15% will raise around R20bn. Thus, a 2% hike could raise additional revenue of R40bn. Even if some of this is ‘given back’ as additional increases in social grants or additional zero rated goods, significant amounts could be raised which could make a serious impact on the budget. The probability of a tiered VAT rate structure has also become somewhat more probable. This, for example, could come in the form of a higher rate for luxury goods (20%?) and a still higher rate (30%?) for ultra-luxury goods.”
Within such an environment – coupled with likely sustained improvement in business and consumer confidence – Els predicts better economic growth for 2018. “There might even be some upside to our already above consensus 1.8% GDP growth forecast for 2018. This is a decent uplift from the 0.3% GDP growth in 2016 and the estimated 0.9% growth in 2017.
“Should politics continue to improve and the Budget marks a return to fiscal consolidation, then Moody’s might be willing to postpone a credit rating downgrade and the Rand could hold onto its gains. Under such circumstances inflation is likely to remain low – and likely lower than the Reserve Bank’s (SARB) forecast. Our own inflation forecast of 4.4% average for 2018 – already below consensus – could mean inflation rates below 4% over the next few months. This, combined with tighter fiscal policy, could lead to circumstances where the SARB could consider restarting its cutting cycle. We expect three rate cuts this year of 25 basis points each.”
Els concludes that while there are still many uncertainties, it seems reasonably clear that the improved political backdrop provides potential for a more positive outlook for 2018 than before. “The local currency and investment markets have already moved quite sharply to reflect much of this.

#Budget2018 needs to be tougher than what SA has seen in the recent past

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Akintunde Majekodunmi, Vice President and banking analyst at Moody&#8217;s joins CNBC Africa from London to discuss the state of Ghana&#8217;s banking sector.

Ghanaian banks’ revenue to decline – Moody’s

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Moody&#8217;s recently published its Outlook report on Sub Saharan Africa for 2018 and projects a 3.5 per cent GDP growth for the region with a negative outlook.

Moody’s outlook for SSA negative in 2018

LUANDA, Jan 11 (Reuters) &#8211; Moody’s assumes the Angolan government does not intend to default on its debt after ambiguous wording in official statements, the ratings agency said in a research report.
Angola this month unveiled plans to restructure its foreign debt and devalued the kwanza currency after the collapse in global oil prices from mid-2014 had battered its economy.
The exchange rate changes in Africa’s second-largest oil producer garnered most attention, with investors saying the kwanza needed to fall further before it reached fair value.
Moody’s said in a report sent to media on Thursday that the new kwanza regime and the government’s desire to renegotiate debt underscored existing pressures on Angola’s credit ratings, which include falling economic growth and liquidity risks.
It said it expected Angola’s debt-to-GDP ratio to rise and for higher inflation to weigh on growth, although it said the country’s current account was likely to improve over time.
The ratings agency said it had discussed the recent policy changes with the Angolan government.
Angolan President Joao Lourenço has embarked on a series of policy and personnel shifts since taking over from long-serving predecessor Jose Eduardo dos Santos in September.
Earlier this week, <a href="http://cnbc.africa/news/southern-africa/2018/01/11/angola-president-sacks-dos-santos-son-head-sovereign-wealth-fund/">Lourenço removed the son of dos Santos as head of Angola’s sovereign wealth fund</a>, in a move to wrest control of another key area of the state.
Meanwhile Fitch says: ANGOLA FX MOVE SIGNALS POLICY SHIFT, BUT “LACKS CLARITY”
* FITCH SAYS DECISIONS BY ANGOLAN AUTHORITIES, INCLUDING SHIFT TO MORE FLEXIBLE EXCHANGE RATE MECHANISM, SIGNAL POTENTIALLY MORE EFFECTIVE POLICY ADJUSTMENT 
Writing by Alexander Winning; Editing by Dale Hudson

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