Moody’s Investors Services on Thursday announced that it has downgraded the South African government’s debt rating by one notch to Baa2 due to poor growth prospects and rising public debt.
The ratings cut puts Moody’s investment rating two notches above junk status, and on par with the ratings of Standard and Poor’s and Fitch. South Africa’s Baa2 rating is also on par with Moody’s ratings of Brazil and Russia.
National Treasury was quick to react and said in a statement that the state is committed to reduce the budget deficit and that poor prospects for economic growth remain a concern.
“Government will continue to make the tough decisions that are necessary to address our challenges so we can build on the gains we have made over the past 20 years to improve the lives of our people,” the statement read.
The ratings agency said the downgrade was primarily due to the poor medium term growth outlook due to structural weaknesses, electricity shortages and a further deterioration of the investor climate. The influential agency also said government’s debt-to-GDP ratio and the budget deficit would continue to rise.
The outlook on the sovereign rating was changed to stable from negative.
Moody’s also downgraded to Baa2 from Baa1 the rating assigned to the debt issued by ZAR Sovereign Capital Fund Propriety Limited.
The downgrade will also lead to a range of downgrades of state owned companies closely linked to the sovereign rating.
Eskom finance director Tsholofele Molefe earlier said a further downgrade of the utility’s debt rating will increase finance costs by between 30% and 40%.
Sanral CFO Inge Mulder on Thursday told the Gauteng e-toll review panel that a further downgrade of the agency’s debt rating will see it at junk status, increasing borrowing cost and chasing away investors.
Sanral’s Moody’s ratings review is scheduled for next week.
Read Moody’s full statement here.
Nomura International believes that the country’s credit rating could be cut to just above junk by Fitch Ratings next month, according to a Bloomberg report on Friday.