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Moody’s junks SA at the ‘worst time’

All three rating agencies now place South Africa’s sovereign debt rating as junk.
South Africa's outlook is negative. Image: Shuttershock

Late on Friday evening Moody’s became the last of the rating companies to cut South Africa’s sovereign credit rating to junk with a negative outlook citing continued deterioration in government’s fiscal strength and weak economic growth. 

“Moody’s does not expect current policy settings to address effectively. Both outcomes speak to weaker economic and fiscal policy effectiveness than Moody’s previously assumed,” it said in a statement released on Friday evening.

“The negative outlook reflects the risk that economic growth will prove even weaker and the debt burden will rise even faster and further than currently expected, weakening debt affordability and potentially, access to funding,” it said. 

Source: National Treasury

The announcement comes as SA concludes its first day of a nationwide lockdown which has seen almost all economic and productive activity, except for the functioning of essential services, slow or completely shut down as citizens remain at home to stop the spread of the novel coronavirus known as Covid-19. 

When it rains it pours  

In a statement, the National Treasury said that Moody’s decision “could not have come at a “worse time” as the country continues its battle with the Covid-19 virus which has infected 1170 people and killed one person since the first case was announced three weeks ago. 

Treasury said that the impact of the virus has crossed over to multiple sectors in the economy including the financial markets which have experienced great volatility and a high sell-offs in equities as investors move their money to safe-haven securities. 

“The sovereign downgrade will only add to the prevailing financial market stress,” said Treasury”. “These two events will truly test South African financial markets”. 

The announcement is significant because it signals SA’s exit from the FTSE World Government Bond Index (WGBI) which requires a sovereign to have at least one investment-grade rating by one of the credit rating agencies. S&P and Fitch had already junked SA’s long-term and local currency debt ratings in 2017.

Read: Junk or no Junk SA will remain on key government bond index

Global fund managers who have investment-grade mandates will be forced to sell-off their South African bonds by the end of April, the new date in which the WGBI will rebalance its indices due to prevailing global market conditions marked by unusual illiquidity and volatility. 

Foreigners hold 37% or R800 billion in the countries total domestic government bonds which are expected to “substantially decline with the impact of Covid-19 and the downgrade”, 

“Therefore to say we are not concerned and trembling in our boots about what might be in the coming weeks and months is an understatement,” said Finance Minister Tito Mboweni 

Reforms are not promised

In its reasoning, Moody’s said South Africa was “entering a period of much lower global growth in an economically vulnerable position” due to electricity supply constraints, persistently low business confidence and investment and labour market “rigidities” which have suppressed the country’s economic growth. 

“Fiscal space is very limited and looser monetary policy will not address underlying structural problems,” said Moody’s.  

“The unprecedented deterioration in the global economic outlook caused by the rapid spread of the coronavirus outbreak will exacerbate South Africa’s economic and fiscal challenges and will complicate the emergence of effective policy responses”.

While there has been a progression in initiatives meant to encourage the creation of jobs and improve competition “progress on structural economic reforms has been very limited,” it said adding that it expected growth to remain depressed in the coming years. 

“Structural issues such as labour market rigidities and uncertainty over property rights generated by the planned land reform remain unaddressed. Moreover, a strategy to stabilise electricity production has been slow to emerge and has yet to prove its effectiveness”.

Debt to soar

Government debt is expected to rise over the coming years irrespective of the scenario. 

“Debt-to-GDP increased by 10 percentage points (ppts) over 2014-18 and will rise by a further 22 ppts over 2019-23 under Moody’s baseline projections,” said Moody’s. 

It noted that any fiscal consolidation would come from arresting the growth on the public sector wage bill which could prove difficult as the government looks to save R160 billion in the next three years by keeping growth below inflation. This goal entails reviewing the final year of the 2018 wage agreement which comes into effect on 1 April, a proposal which has been rejected by organised labour. 

“The negative outlook reflects downside risks around economic growth and fiscal metrics, that could lead to an even more rapid and sizeable increase in the debt burden, further lowering debt affordability and potentially weakening South Africa’s access to funding,” it said. 

Moody’s said the possibility of South Africa climbing out of junk territory was “unlikely in the near future” given the negative outlook. 

“Moody’s would likely change the rating outlook to stable if the government’s medium-term fiscal consolidation were to proceed broadly in line with the rating agency’s central expectations, with prospects of a slow but durable pick-up in growth and financing risks remaining low”. 

“In this scenario, Moody’s would likely see a gradual reduction in South Africa’s primary deficit in the next few years, with increasing assurance that government debt will stabilise comfortably below 90% of GDP,” it stated.

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This was expected and will bring about untod challenges!

Will we recover?

Yes if we

cut the wage bill, shut SAA, involve the Private Sector to assist with Power Supply, abolish BEE to bring back the skill, finalize a decent land reform policy, get rid of all mayors and their perks, cut Government employees to curb the wage bill, bring to book the state capturers and get the unions to tow the line

A pipe dream? Perhaps

But so was winning the RWC

It’s possible even plausible, even the ANC can pull it off

Sa winning the rwc was an organized result with many professional administrators and ex rugby players creating a culture of excellence at rass roots levels. Having excellent feedstock withing the schooling and provincial systems and meritocracy playing a role helps. The “natural feedstocks ” at the civil service levels is fraught with poorly educated, morally compromised individuals with little interest in the welfare of many.

Hence my comment “BRING BACK THE SKILL” which amplifies what you said about “ creating a culture of excellence at grass roots level”

You cannot replace skill and knowledge through reverse segregation (BEE)

Incidentally, my viewpoint is a metaphor, illustrating that it’s possible for the country to get itself out of the abyss by doing it collectively without being populist

If ANC can’t sell SAA in circumstances then it PROVES they cannot be fiscally responsible, even in Extreme circumstances.

The Solution?
-is surprisingly NOT leaving SA

The Answer is:

Enjoy the world-class lifestyle (food quality, nature, cheap living) while earning foreign currency.


1) Moving your business to focus 100% on export clients. If you don’t yet export, start.

2) Working a corporate job? Learn a skill you can ‘export’ (start as simple as freelancing to people in 1st world countries)

Then build up wealth (which you actually can do in a foreign currency) to buy the ULTIMATE protection: foreign citizenship:

You can buy residency in another country (Mauritius/Portugal/Isle of Mann are cheap – other more expensive options)

The internet makes this transition easier & cheaper than ever before.

Start Now.

Sound advice, thanks for sharing

One commodity which will help you on your way is Gold, not shares but real old fashioned tangible gold

In other words what you’re saying is that we wont recover.

Winning the world cup was far more possible because it had people with brains managing the team and the team worked in unison.

Cutting the wage will wont happen. Immediately after it was announced in Feb, Ramaphosa reneged on it saying that it wouldn’t be cut but would be done with “smaller increases over 3 years” and then this week amongst the Corona noise it was announced that from 1 April, government workers (negotiated via Cosatu) get between 3.5% and 5.5% increases. Needless to say that they wont be cutting government employee numbers because of the unions.

SAA wont be shut because of the black ego.

The “private sector” in the form of African Rainbow Energy and Power (Cyril’s brother-in-law) will be supplying “alternative power” as an alternative channel for the ANC can continue looting.

BEE and land reform wont go as long as the ANC are in power because their election policies are built on that and it is extremely lucrative for them.

They wont get rid of mayors and perks because it is for themselves.

They wont bring state capturers to book because they are the state capturers. The unions wont toe the line because they are part of the tripartheid alliance with the ANC and the Communist Party.

The ANC has failed. The evidence is everywhere.

Once corona is over, they will go begging to China who will turn them away because China wants investment cases where economies are productive and have hard workers. China has already indicated that they aren’t interested but no doubt that the ANC will be willing to sell their souls to avoid the embarrassment of begging at the door of the IMF.

Ultimately the IMF will loan to them and become the ANC’s masters. The conditions will be (amongst others) that they drop BEE because it destroys the economy, and drop all ideas and talk around expropriation and racial bias.

This will cause a split in the ANC (thank God) and the those who tend to be more ethical will form a coalition with the DA. The rest will join with the EFF.

And that will be the start of our new future, with new poverty and new masters.

What you say carries a lot of merit and i agree with your summations

However you neglected to mention the effect of the virus on the economy and the consequential job losses

Given that a certain group of SME’s are excluded from the “assistance” offered, the entrepreneur will retrench and continue to flourish, because thats what we as entrepreneurs do.
I for one am no longer an agent for SARS, collecting income tax on their behalf. I give nothing (employment) hence expect zero in return

Add to this the recent downgrade by Moody’s and you have a cocktail of disasters looming, a country in total disrepair after Corona. We just don’t have the honest leadership to steer this sinking ship to a repair yard

Given the current policies and segregation toward the minority, (BEE) there is no remedy, no more space to move, no more money to loot

Perhaps Government will come to their senses, which in all probability won’t happen..”All for one and one for all”

The IMF isn’t the only alternative, there is the BRICS bank too

We’re all hoping for an IMF bailout which, as you alluded to, comes with strict conditions, not the least of them being the dictating of fiscal policy

Whatever happens, truth be told that the ANC have destroyed what was once the jewel of Africa, a powerhouse of an economy

They have let all South Africans down and with the unabated corruption and looting, left the masses, their voters, worse off

Great comment Seve. We can and we will recover! You are dynamic.

A hearty congratulations to the ANC on their fine achievement in record time. It is truly a gifted organisation/government that can take a country with world class infrastructure, abundant mineral resources, as well as unlimited tourism possibility and destroy it all in a paltry 25 years.

the ANC is really gifted in that sense !

It’s actually far worse than that. The State the ANC inherited from the Nats was rated junk and bankrupt. The ANC painstakingly rescued us from the brink, paid off the debt, grew the economy, fixed tax collection and brought our credit rating to a level comparable with much of the developed world.

And then, having pulled off that miracle, they trashed it all so their boss could have a nice house in KZN.

Indeed in 1984 the country was in a mess due to sanctions, shrinking economy and the effects of fighting communist wars in Angola.

Trevor Manuel closed teaching colleges and many other facilities, it was easy to do to non-ANC supporters.

Tito Mboweni will really struggle to do the same job with the ANC millstone around his neck.

In Johannesburg we now have a bill of R22m a month for security guards hired by Herman Mashaba. They are doing nothing because the new ANC council does not want them but is too toothless to fire them. There is absolutely no respect for taxpayers from any politician.

Context. From a base of extreme economic sanctions and high interest rates the economy moved to no sanctions and very low interest rates.

Good job guys – you’re obviously living in a bunker somewhere safe and sound – you’ve kicked a country while it’s on its knees – they call this act cowardice just in case you were wondering.

South Africa stumbled into the ditch all on their own. Moody’s just pointed out that we’re in the ditch….rightly so.

oh…dear ..another one who thinks the ANC deserve to be treated with kid gloves …..after many years in government

Cry me a river. This is their job to deliver an unbiased and factual decision. If SA “managament” had been using their grey matter in a prudent and conservative manner while adhering to good governance this would not have happened. This mess has been in the making for 25 years plus. It is not surprising to anyone.

Well then. We had a lot of time to get our act together and we did not. Every time Moody’s did not declare us as junk we were surprised. Now we are junk and we are shocked?
But what the hell, it’s not our fault, we can blame Corona 19.

We had about 20 years to get our act together, but no, we know best.

And the price has been 20 years of sub par growth and now a downgrade.

Inflation and money printing will likely be next.

Can’t say you didn’t see it coming

Well, now we’re going to see about all those people who said not to worry, a downgrade is already priced in.

Bloomberg says foreigners must dump 800bn of bonds by end of April… And that’s not going to move the rand because it’s all baked in?

Seriously? No way.

Not so sure about that. Sure, fund managers with investment grade mandates will have to offload our bonds but to whom? There are many other fund managers with different mandates who may be very willing to take on the risk given our juicy yields in comparison to the US benchmark 10-year treasury bond at less than 1%. The forced sale of our bonds could even see the ZAR strengthen through the flip-side demand. Imagine that?

The effects of legalise marijuana is starting to show; or is that the general lower quality of education.

You can not see a long term trajectory (20 plus years) and say sinking deeper into a hole is a good thing.

So… the chickens have come home to roost at the worst possible time
Will the authorities ever learn that running a welfare state without a tax base JUST DOES NOT WORK!
It’s time to part company with Marxist, Leninist political “partners” and create a culture of growth rather than living with the illusion that Government can solve the problem

They were too busy stealing to actually look up and see the tax base start to move to greener pastures.

We were addressing the wrong things. You cant just only focus on ESKOM. Most SOe’s are failed and will be placed under business rescue. Big companies like edcon are losing the battles. To little support for companies. If you let go 44 000 workers that implication is massive. You lose tax revenue and you put pressure on other aspects of the economy.

Then labour unions go crazy about retrenchments but its already to late. You need jobs, you need to support local and other businesses but we are just focusing on failed SOe’s.

Sad day for SA, lets see on Monday whether this was indeed already priced in.

Wonder when the Credit rating agencies will start cutting the US and European countries’ credit ratings? Italy’s Debt to GDP is already at 137% with the US at 90%.

With the expectation of the US economy shrinking 25% – 30% due to Covid-19, and a $2 trillion stimulus package (read “printing money”) surely the credit rating agencies should start looking at a cutting ratings for these countries?

Nope, on 26 March 2020 Fitch decided the prudent thing to do is to affirm the US credit rating at AAA with a Stable outlook…

total debt to GDP for US is already > 120% if i am correct ;

Sure and it only means that currently the USA is borrowing more than it is earning over a year. It does not mean that they are not regarded as a good and safe investment destination since they have the ability to honor their debts (and as a global reserve currency they always have demand for dollars), because they have built up assets over the years. SA does not compare favorably when looking at the assets… basically SOCs that are broke.

This is just sad, the voters got what they voted for and therefore they not only the accomplices but also the enablers and the original offenders.
The sad part is the people who did not vote for the anc, the mums and dads who works hard every day to support system which they do not agree with and unfortunately it’s their shoulders which will carry the weigh of this punishment.

The original sin,
This often comes up be it Apartied, be the third force or even Adam and Eve.
I for one never blamed Eve, she was courted, deceived and manipulated however Adam consciously made the decision.
Simply put the fruits of both Order and Chaos where presented but the voters chose the latter.

The population was openly and honestly told that they will suffer and die from Covid-19 yet they partied in the streets.

We always have a choice even though we live in a world between Order and Chaos we can Tolerate Order with a bit of Chaos but not the opposite.

Moody’s seems to have been trying it’s best to ignore the blindingly obvious for 18 months. The lack of economic and fiscal policy effectiveness isn’t something that’s surfaced since Moody’s last review. And there’s no point in government bleating, they’ve had years to reverse the decline and they’ve done very little. Maybe the current crisis will be the turning point in that they wake up to the fact they need to take firm control of matters and not hide behind ANC consensus policy formulation. However just like the masses wandering around Jo’burg yesterday, I’m just not sure they “get it”. Let’s hope I’m very wrong in my assessment.

Cyril is not concerned…. he can go cap in hand to Beijing for economic assistance, not that again, the consequences are matter

Beijing will show Squirrel the door. They have already essentially shown ZA the door. And China have big problems of their own.

Government needs to get over it’s “ previous regime “ excuse and bring back the experts of which a lot are in retirement stage. The time to blame is over…the time to act is immediate .

Moody’s took 25 years to realize that Luthuli House is junk. We have known it all along. We did not experience any tsunamis, earthquakes, hurricanes, floods, meteorite strikes, nor did we experience a military invasion by foreign forces. No bombings, sabotage or drone strikes.

We have got nothing, but the ANC, to blame junk status on. The Tripartite Alliance sabotaged the economy. They undermined economic growth. They plundered the shared resources. They use labour laws to extort money from businesses and to contract economic growth. They use BEE laws to extort capital from entrepreneurs and cashflow from the general public. They use the mining charter to detonate a bomb under exploration and job creation in the mining industry. They use local beneficiation requirements to decimate rural areas and to destroy mining towns. They use the security of tenure laws to demolish workers’ houses on farms. They use cadre deployment to bankrupt SOEs and municipalities and to destroy transport, electricity supply and service delivery.

They use the expropriation debate to destroy capital formation, to destroy jobs and investments. The destruction of the tax-base, the exploding Debt/GDP ratio, the rising Budget Deficit are all manifestations of the ANC policies.

Junk status emanates from the Freedom Charter. The “colonialists”, or free-market capitalists rather, handed a country over that was so strong and robust that it took the socialists 25 years to break it down to junk status. Therefore, it is not all citizens who must accept the description of junk status. It is only a certain part of society who is responsible for this description and who should own up to it. We knew it all along, but now it is official, ANC supporters are junk.

Too true brother. The slow motion car crash we knew was going to happen, has happened. You’d imagine this would be a time for reflection and serious reform…never, not within the ANC. They have never and will never put the people first.

Blame should go to the following: ANC, Zuma, Guptas, Eskom, KPMG, Other SOE’s, Bank of Baroda, Bain, Mckinsey, Bell Pottinger, Bosasa, SAP and Thales.

They believed that there was no limit to the plunder they could visit on South Africa.

Sorry if I left off any at the top of the pile. There are so many.

Including ANC voters for enabling the ANC

Finally we can stop hearing moodys this moodys that…this too shall pass.

Ask the average Zimbo or Venezuelan if it has passed yet.

This is what happens when politicians are trusted with a monopoly over peoples lives. The masses need to be educated, start by ending public education system.

This is what happens when politicians are trusted with a monopoly over people lives.

And at the best possible times government did nothing……………….

The goons must not howl and blame apartheid and white monopoly capital, they have had 25 years to do the right thing.

If ever there was a case to sell non-performing SOEs (is there 1 that is??!) this is surely it!! Time to stand up to the unions!!!

True but then they all vote EFF and and after quickly redistributing (stealing)what is still left we immediately go into a Zimbabwe situation.
Happy Days

I agree – problem is that the moment to find a buyer may well have passed.

“Fiscal space is very limited and looser monetary policy will not address underlying structural problems,” said Moody’s. but but … i thought cutting the interest rate by 1% OR MORE would have solved all these issues.
Should have kept it where it was. And don’t forget that our VERY COMPETENT ANC government is now also going to start to play with QE. What is coming is huge inflation due to a ZAR crashing. Look at our Municipalities, and you will see the future of our Government !!

On the contrary, this is probably the best time for it to have happened, since the impact is going to be minimal due to the overwhelm of the Corona virus and everything happening around it.

A few years ago Magnus Heystek predicted the current happenings and advised people to move as much money possible offshore whilst the SA Rand was R10.00–R12.00 if my memory is correct. Many people on this platform knocked him because of his opinions. Personally I agreed with him and moved 90% of what I could offshore. Today the proof is in the pudding and my investments are doing well at R17.63 to the US$ and nearly R22.00 to the GB pound. Currently I don’t see any light in our financial tunnel in SA. Thus unless our gov start using the various Tax Income funds responsibly and get rid of the money sucking SOE’s which are just “rich quick schemes” for the selected few it is going to get worse.

I’d love to know which investment of yours are doing well. Mine have tanked but in Rand terms, my foreign investments are weathering the storm better than local investments because of the exchange rate. Doesn’t help much if I want to utilize that money abroad though.

Good scheme; except you have parliamentarian risk as legislation can change to a special tax or even “expropriation without compensation“ those assets in the interest of the “greater good”…

There is still a far way to fall.. but if you have to keep the masses happy…

well..I am not seeing a good scenario offshore anymore either.

Like the SA Govt ordered the ratings divisions of Fitch and S&P out of the country within 24 hours, will they do the same to Moody’s now??

Economists are the wrong people to expect to cure SA’s problems. They have neither the toolset. Nor, it seems the flexible mindset to adapt their profession to the bigger picture.

Which is…

Undisciplined, irresponsible, population growth SEVERELY unable to provide for itself in a future of constrained resources.

This is above all a civic leadership (and ethos) at every level in society – individually, and collectively in families, businesses, schools, and every level of every civic institution.

It has been the declining trend for DECADES.

One has to start with the big-picture vision and then work backwards.

Economists, if they want to contribute, have to ACTIVELY explore how society and leadership can be RADICALLY incentivised to reduce irresponsible population growth.

No VISION here. No future!

People cannot blame Moody’s – other peoples’ savings and pension funds are invested on the strength of risk ratings by the likes of Moody’s.

Retired and cannot go anywhere…. Buying a little bit of gold with the little that I can still save.

You can “spin” only so many times to Moody’s then your luck runs out !

– From 1 Jan 2020 this year, currency down 26%.

– extremely high RSA debt levels

– SARB buying bonds in SA by printing cash => first step to a “money printing shop” => ballooning SA balance sheet even more.

– artificially low interest rates => there will be massive exodus out of money market instruments. less liquidity is an obvious consequence of this.

– no action on public wage bill by CR

– inaction to jail the looters in state capture

– as Mosiuoa Lekota said after the elections – CR is a great talker but
in his experience of the man there will never be any action as he is
a trade unionist at heart trying to please everyone.

brace yourself for:

1) prescribed assets on your pension fund.
2) increased unemployment in capital intensive industries that can’t
stomach the weak currency anymore in creating new production
3) Ageing industrial capacity that lead to lower productivity as firms
can’t afford expensive imported capital goods
4) increase fiscal burden on already stretched tax payer.
5) much higher “real” inflation (the one not measured by STATS SA.)

They (Moody’s) gave the ANC-Government so much time to self-correct yet the ANC continued to believe that economic reality does not apply to it and South Africa. Ramaphosa has to be held accountable and explain why when he knew the deal (to avoid a Moody’s downgrade) he still he dilly dallied. The ANC is a monumental disgrace and even worse they expect the ordinary citizen to take the flack for their incompetence. What next? I guess the ANC will proceed with EWC. Go ahead I say because ‘destruction’ is all you have offer.

In a perverse way it could be viewed as the best time, at any other time this would have dominated the news, now it barely registers, even its financial impact will probably be muffled by the broader economic slowdown.

Finally. Junk status long overdue. SA was given chance after chance, but ignored the opportunity to take drastic actions. This is the price to be paid for complacency and the inability of the government to implement the necessary reforms. Unlikely that we’ll recover from this. Let the fund outflows continue…..

End of comments.





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