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SA descends deeper into junk after two downgrades

Moody’s joins Fitch in lowering the country’s credit ratings.
Commercial buildings and office property stand on the city skyline as night falls, as seen from the 50th floor of the Carlton Centre, in Johannesburg. Image: Waldo Swiegers/Bloomberg

South Africa fell deeper into junk territory after Moody’s Investors Service joined Fitch Ratings in lowering the country’s credit ratings on Friday.

Moody’s cut the nation’s foreign- and local-currency ratings to Ba2, two levels below investment grade, from Ba1. The outlook remains negative. Fitch cut the nation’s foreign- and local-currency ratings to BB-, three levels below investment grade, from BB, also with a negative outlook.

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“The key driver behind the rating downgrade to Ba2 is the further expected weakening in South Africa’s fiscal strength over the medium term,” Moody’s said in a statement. Fitch said in a separate release that “the pandemic has severely hit South Africa’s economic growth performance, and GDP is expected to remain below 2019 levels even in 2022.”

Read: Here’s how much a downgrade to junk will cost South Africa

Fitch, Moody’s downgrade SA banks to junk

Only five of 23 economists surveyed by Bloomberg predicted Moody’s to cut the rating.

The coronavirus pandemic exacerbated the deterioration of South Africa’s government finances because it weighed on revenue collection, raised the cost of borrowing and pushed the economy into its longest recession in almost three decades.

Government salaries

Finance Minister Tito Mboweni’s medium-term budget last month showed plans to pare the government salary bill, which has surged 51% since 2008, as part of an effort to start bringing the government debt trajectory down after 2026.

The proposed wage freeze risks a backlash from politically influential labor groups that are already in a legal battle with the government to honour an agreed pay deal. If state salaries can’t be cut, there’s limited room for offsetting measures in other expenditure areas.

“A recovery is on the way as the lockdown was gradually eased during the third quarter and we expect GDP will contract by 7.3% in 2020,” Fitch said. South Africa’s government debt affordability, measured as the portion of revenue needed to cover interest payments, will deteriorate to 25% in the medium term, according to Moody’s.

S&P on Friday kept its assessment of South Africa’s foreign-currency debt three levels below investment grade, with a stable outlook.

© 2020 Bloomberg

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Double standards!

No mercy shown to struggling country during the Covid-19 pandemic.

Do they apply the same criteria to the debt and Covid-19 infested US, UK and the EU?

The government is our problem, not the pandemic. The pandemic will pass, the disastrous direction we are following, clearly not. You saw anything about the UK, US and EU counties wanting to steal private property, misuse private pension funds, nationalize banks, wreck healthcare, etc? Me neither.

This speaks to the trust that ratings agencies have in the South African government to move from talk to action and the ability to meet future debt obligations. Nothing personal.
The burn rate of the government is unmoved but the income side is getting smaller each year. It is informative to calculate how much government debt each income tax paying South African is responsible for. The growth of this number is what is of concern.

Moody’s and Fitch downgraded the UK economy in 2020

Its silly to post gibberish; Read up on info before posting

Seems that downgrading South Africa is common now.

This country has a lot of untapped potential and not just the dissapearing paper economy like it is in the UK.

Dear speculator – this should be right up your creek – speculate on a weakening currency !!

He must’ve speculated on buying into SA Inc. and is now feeling the heat…sorry bru, no more free passes due to Mandela.

SA economy was already in turmoil pre Covid-19 and mostly self imposed, due to our reluctance to perform structural changes needed to secure economic growth. Instead we have insisted on Socialist/Marxist policies, promising the decline.

This coupled with State capture and wide scale corruption, reluctance to take a strong stand against it, basically ensured an investment downgrade.

Covid-19 was basically the final nail in the coffin.

@ henry666: Yet one more nail after that methinks. Covid relief funds stolen by the Looters in government and the patronage networks it supports. And then there is that spectacular elephant in the room called EWC which not many commentators like to speak about – close yours to that and it may just disappear. Or maybe TheSpeculator thinks that would not influence prospective investors because it would only affect those nasty farmers who feed the nation and evil WMC.

In the UK, US and Japan … the credit rating agencies says the governments have central banks that can buy the debts and keep interest rates low… hence downgrades are rare

Shame, poor SA a victim again – go do research on ANC failed economic policies LONG before Covid19 as well as warning after warning over many years from ratings agencies to SA. Of course people like Pravin Gordhan ignored all this and STILL pulls the middle finger with his SAA wastage.
SA is getting what it deserves!

Then you ask yourself if SA could afford things like the stupid cigarette and alcohol bans. Thousands of jobs lost and billions in revenue lost. BILLIONS.

So these agencies look at this type of thing and just say this Government is not mature enough to fix what they broke. YES MOST OF IT IS SELF INFLICTED. Most of it was broke before the pandemic.

Then there is the constant bailouts of the likes of SAA etc. not to mention union interference.

Its become a welfare state. Doomed.

Just plain stupid.

If the masses were better educated and were aware of the world economy they would come to the conclusion that the ANC government is woefully useless at running a Spaza shop let alone RSA’s economy.
Time to dump the ANC

ANC is to thank you this Deeper junk status.

When will the ICC pounce on the ANC cadres for their crimes against humanity for corruption, especially stealing money reserved for COVID-19 PPE Procurement?

“The coronavirus pandemic exacerbated the deterioration of South Africa’s government finances because it weighed on revenue collection”

I completely disagree with this false statement its is Fake News and a slap in the face of those people who lost their jobs and lost their income from the lockdown that sank the economy and most off all merely exist without a purpose.

The ANC government forced the lockdown on the economy, The ANC stopped people from being able to participate in the economy, The ANC discriminated by choosing who they felt deserved *peanuts.

https://youtu.be/PC0LVT1UyMk

#ItsTimeToBlameTheANC #VoetsekANC #WelfarState

*peanuts – The current international poverty line is $1.90 per day

What is this but a savage indictment on the ANC regime who magically transmogrified the functioning economy into a third world banana republic using the tried and trusted techniques of African socialism, nepotism, cronyism, state sponsored plunder and misdirection of resources?

This is turn is nothing less than a less-than-mild imputation of the mindset of the median voter, specifically the complete absence of any form of cognisance of the correlation between any irrational choices made and currently staring into the abyss.

Venal leaders and governments are the curse of Africa, and robbed it of its enormous potential, after many years of Colonial rule.

The ANC in only two decades managed to take a country that I think was comparatively well-run, and changed it into a corruption-riddled, autocratic mess sent into economic free fall by its kleptomaniacal previous president (read Zuma) and his cohorts.

We are just sinking away daily with another deeper junk downgrading – we will spend another two decades to get out of this mess before we could even hope to get any type of investment grading back!

Regarding a “country that was comparatively well-run” as you put it, the collapse of the national railways freight division is a prime example of what you’re talking about: in about 1998, the new ANC government shut hundreds of small stations that had for decades served remote rural areas throughout the country. With the ANC in charge and trains no longer stopping at remote rural stations to offload entire trucks with boxes of day-old live chicks, an entire economic activity worth millions in the food production and consumer sector, was wiped out in a matter of a couple of months.The tradition of selling live chickens on streets of rural towns and villages as a source of food and protein was common since it required no abattoir or cooling facilities.
But Transnet withdrew the service overnight, saying the goods must go by road – a far more costly mode of transport.

I think you should thank auntie Maria Ramos for that – she what the Transnet 9many deceased already) had to go through.

The highways are in total shambles – Toll cannot pay for the repair etc anymore.

Can someone quickly call nomvula mokonyane

Yes, the rand must just “bounce back” again. And she knows how to do it..
(What happened to the Aston Martin?)

Not to Worry :like Jacob Zuma we can just walk away and ignore these small irritations of Laws and Rules and other Western Concepts !!!
Todays EFF grandkids will be praying for White Monopoly Capital to return !!!

Go democracy! (totally sarcastic) You allow any F’ing buffoon with an ID book and the ability to mark X on a piece of paper to decide on who runs a country??? Surprise surprise……

The reality is that South African democratic voting gives the impression of the elector knowing his elected.

I for one have never met any of them nor do I know of anyone who knows them.

True Democracy means having a Democratic process where by the elector knows and wilfully elects the elected.

The only way that can take place is by organising neighbouring persons into a group consisting of 19, they will elect two citizens almost themselves who will be the Principle and Deputy Representatives. The elected will organise on groups of 19 and elect again, this process will need to continue until representation of the province has been selected, the final vote will determine the 9 counsel members.

No agency was prepared to wait for a Feb 2021 budget, outcome of court battle between labour and gov, etc, before deciding – as was hoped in some quaters.
The legacy left to our descendents by the ANC/Cosatu/SACP Tripartheid alliance is one of poverty, anarchy and social upheaval…

Twenty-five years of ANC anti-capitalist lunacy has left its mark on the credit ratings. ANC policies infringe on property rights, causes unemployment and torpedoes the economy. That being said, there is also another perspective on the matter. It is quite normal for the credit ratings of Emerging Market economies to deteriorate after a decade-long cycle of dollar strength. The dollar has strengthened by 33% against a basket of currencies (Dollar Index) over the last decade. A strengthening dollar sucks the liquidity out of economies that use the dollar as a reserve currency, and especially commodity-producing economies whose exports are priced in dollars.

Economic crises and debt defaults batter many Latin American and African countries at the moment. The previous period of longterm dollar strength was marked by the Asian Debt Crisis in 1997, the Russian Crises in 1998 and the Latin American Debt Crisis of the ’80s. All of these countries dug their own graves with populist socialist policies. The stronger dollar of the last decade does not allow the disastrous ANC to escape judgement day. The stronger dollar is the noose around the neck of Lhutuli House that chokes them into austerity measures.

Essentially what you are saying is that when the times were good (commodities boom) save as much dollars as possible then when times are hard you have stored value to get back out there.

Trevor Manual did this when he was finance minister, I wonder if that is what the whole fight for the reserve bank is about. Should be about $50bil in force.

Oh there’s a downgrade. No wonder Cyril did put on a PR show the other day, something to do with multibillion business pledges.So it was all in anticipation of the credit rating?

End of comments.

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