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Moody’s leaves South Africa teetering on brink of ‘junk’

Credible fiscal stance needed in February budget.

Moody’s left South Africa on the brink of “junk” status on Friday after it revised the outlook on the country’s last investment-grade credit rating to “negative,” piling pressure on President Cyril Ramaphosa to quicken the pace of reform.

Moody’s said the outlook revision on its ‘Baa3’ rating, the lowest rung of investment grade, was motivated by a deterioration in the economic growth outlook and rising debt.

Analysts had expected the move after a bleak mid-term budget statement this week that slashed this year’s growth forecast to 0.5% and showed government debt racing to more than 70% of gross domestic product by 2023.

The rand tumbled more than 2.5% over the past week against the dollar, its sharpest weekly drop since early August. Yields on local 10-year government bond issues traded on Monday at just over 8% but climbed as high as 8.6% following the dire budget predictions.

The negative outlook means there is a window of 12-18 months in which a downgrade could be delivered, but it could come sooner if Moody’s isn’t impressed by the fiscal picture presented at the next budget statement in February.

“The development of a credible fiscal strategy to contain the rise in debt, including in the 2020 budget process and statement, will be crucial to sustain the rating at its current level,” Moody’s said in a statement after South African financial markets had closed.

It added that its new outlook reflected rising concern that the government would not find “the political capital to implement the range of measures it intends, and that its plans will be largely ineffective in lifting growth”.

The finance ministry responded by saying the country had “a narrow window to demonstrate faster and concrete implementation of reforms”.

Read: Rand falls after Mboweni says Moody’s rating ‘not looking good’

Ramaphosa has struggled to revive Africa’s most advanced economy since taking over from scandal-plagued Jacob Zuma in February 2018.

The wave of optimism among foreign and local investors that accompanied his rise to power has fizzled out as the economic challenges have grown more acute, with unemployment reaching an 11-year high above 29% and state power company Eskom struggling to keep the lights on.

One of the greatest worries is rising government debt, which shows no signs of stabilising soon amid repeated bailouts for state-owned companies.

‘Consistent uncertainty’ 

Fund managers said they were not expecting a steep sell-off in government bonds and the rand when financial markets re-open on Monday, because the outlook revision was expected by so many and South African assets had fallen sharply over the past week.

The spread of South African dollar debt over US Treasuries is already wider than on some junk-rated sovereigns, reflecting longstanding concerns over the country’s fiscal health.

“Valuations are already reflecting this outcome. So on any sell-offs, we would see it as a buying opportunity,” said Jean-Charles Sambor, deputy head of emerging market fixed income at BNP Paribas Asset Management.

S&P Global and Fitch already moved South Africa’s debt to sub-investment level in 2017, when the country was embroiled in corruption scandals under Zuma.

A move to “junk status” from all three agencies typically increases a government’s cost of borrowing by raising the premium that investors demand to hold its debt. It could also see South Africa evicted from the benchmark World Government Bond Index of local-currency debt, which could trigger billions of dollars of passive outflows.

Phoenix Kalen, director of emerging markets strategy at Societe Generale, said South Africa was now in the “last-chance saloon” and that it had to stabilise its debt.

“This will be a Herculean task,” Kalen said, citing financial pressures at state companies among causes for concern.

Ramaphosa’s government has promised Eskom R230 billion of bailouts over the next decade, on top of a R59 billion “special appropriation” over the next two fiscal years. But analysts say it will need more state money than that.

Kevin Lings, chief economist at asset manager Stanlib, said a downgrade in 2020 was now his “base case” and that some investors would be reluctant to buy South African debt until the downgrade had happened.

“Next year is going to be marked by consistent uncertainty around the currency and bond markets, it’s going to put South Africa under a lot of strain,” he said.

Read all about the mini budget here.

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Well done ANC but not to worry, the unions (who control the economy and readily intimidate the government) have a master plan which they will share with the ratings agencies and all will be well.

Their unions are planning on committing high treason, should Eskom be split up, by sabotaging the electricity supply. This in many countries is a capital offense. Somebody needs to man up and ensure that the first union members to do so, get life in orange overalls, with the leadership of the unions sharing a communal cell.

Can there be any doubt that our next stop is junk?

You know what Moody’s is like, it will take a while, but it is sure to happen.

“The development of a credible fiscal strategy to contain the rise in debt, including in the 2020 Budget process and statement, will be crucial to sustaining the rating at its current level,”

So essentially come up with something for the feb budget or we must cut.

Problem is, like at every budget and mid-term for the past decade, tax collection and GDP will undershoot, forcing fresh downward revisions and they key numbers fiscal defecit and debt/GDP looking even worse.

Like watching a train wreck.

Is anyone really suprised?
If the downgrade does not happen in March 2020, Moody’s will have loose their credibility.

If politicians only moved as quick as their lips do when they make promises.

This all comes down to 1 thing, voters not holding their politicians accountable.

“Loose credibility” lol

You’re a sad man, Anything.

You could say I am a looser

Look at the bright side: it is “a victory for transformation” or whatever…

This was the call I expected and is the final warning shot across the bow of the ANC. Hopefully this will give them the ammunition they need to make the tough decisions that desperately need to be made (optimistic I know). This also needs to be a warning to all of us as individuals that we need to take control of our own financial situations as a matter of urgency. People, companies and even countries go broke slowly and then fast – SA is now speeding up and we are fast running out of time and options. We can bank on taxes increasing to pay for their gross mistakes so get your affairs in order to minimize this plunder.

and now the only solution is….pension funds…expect changes te regulations by Feb 2020…and no junk status

…yes, I (sadly) agree: that R6-trillion in SA pension fund assets is way too large for govt to ignore.

Sometime in future, we’ll have fantastic bond-yields on a certain portion of one’s compulsory retirement fund returns (but at same time, you won’t be able to draw upon that part of your ret capital to live off).

“Dear sir/madam, kindly accept our govt-sponsored “IOU” a la Zim’s promissory notes/bills. (…we’ll have to see what fancy descriptive name the ANC will come up with).

Stinking corrupt politicians –
Do 3 things
1. Slash your own government wage bill if 30 000 folk out of 10 million lose their employment with Eskom 0.3% of workers (or is the employed now 16 million?) And this stabilised Eskom and therefore business. Promise they will be hired during the growth
2. Lock up a few corrupt politicians
3. Seize around R100 billion of their assets and voila we make progress

So, we didn’t get a red card…yet. When we eventually do get a red card everybody will blame the referee. Some academics already call for better oversight over rating agencies in Africa. These socialist losers feel that the rating agencies do not account for social justice and equality. These socialist policies deserve a red card, but these academics want to appoint their homegrown referees. Many African countries that are facing hyperinflation and economic ruin need loans from abroad. All they need is an “understanding” and corrupt referee to swing the game in their favour.

They run a country like they run the national soccer team. There is no need to train and work to improve your performance if can buy the referee. I won’t be surprised if Luthuli House comes up with its private rating agency, called Cadre and Cadre and chaired by Magashule. This is how you get a Tripple A rating in Africa.

Not to mention that their homegrown referees will be ref’ing in a game that nobody is watching or cares about.

Is it possible that the ANC could be bribing Moody’s to keep it above junk status? Why is no one asking this question on any forum?

Whew, a relief as long as the show holds together so I can still get some value for my ZAR and before taxes are hiked. No meaningful, longer term positive changes will be made by this venal ANC.

Exactly, a bit more time available now to move as much of your money offshore, before the rand weakens further after reaching junk status.

This is ANC transformation. They have transformed the economy from investment grade to junk.

True, but it was also sub investment grade before they started.

They always rate. It was investment grade before that

Nope. Get your facts right. And there were all the sanctions due to your crimes against humanity. That is ‘no investment grade’.

Actually Moody’s are now part of the problem because the decision not to downgrade is holding the ANC Government back from making the necessary decisions. Plain dumb.

You new in RSA?

I was answering Anything on his strange observations, if you can call them that.

Mindblowing that there still remains a view that Cyril “implementation is my second name” plans to implement “reforms”.

Quote: “…President Cyril Ramaphosa to quicken the PACE OF REFORM”

What a misnomer! There is NO real reforms in my book!

Has the social experiment of AA/BEE been abolished? (which hamstrung the efficiency in any economy)

Has the power of the unions / labour law been curbed?

Has the state reduced its level of interference into the private sector?

Has the ANC moved away from its socialist populist stance?

Have we become a tax-friendly / low-tax country yet?

Sorry, I do not see ANY effective reforms!

Correction…..the anc leaves South Africa teetering on the brink of junk!

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