Moody’s Investors Service finally downgraded South Africa to junk status.
The main reason for the downgrade is the continuing decline in the country’s financial affairs, coupled with very poor economic growth.
The decision means the country is now in complete junk status.
Moody’s downgraded both government debt and foreign currencies by one level to Ba1.
The outlook for the rating, which is often changed from negative to stable after a downgrade, was kept negative. This means the risk remains high that South Africa could be downgraded again in November.
Bank Zero founder Michael Jordaan predicted on Twitter on Thursday that Moody’s would downgrade the country, but also predicted it would not stir markets too much.
Emerging countries’ currencies, in particular, are on the ropes as international asset managers turn to so-called shelters at a time of uncertainty created by the Covid 19 pandemic. The rand weakened to even R17.90 against the dollar over the past week, but stood at R17.53 on Friday afternoon. The impact on the rand will begin to filter through on Monday.
In a statement on Moody’s website:
Paris, March 27, 2020 — Moody’s Investors Service, (“Moody’s”) has today downgraded the Government of South Africa’s long-term foreign-currency and local-currency issuer ratings to Ba1 from Baa3. The outlook remains negative.
The key driver behind the rating downgrade to Ba1 is the continuing deterioration in fiscal strength and structurally very weak growth, which 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.
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.
Moody’s also downgraded South Africa’s long-term foreign-currency and local-currency senior unsecured debt ratings to Ba1 from Baa3, its foreign-currency senior unsecured MTN and senior unsecured Shelf ratings to (P)Ba1 from (P)Baa3, as well as its foreign-currency other short-term rating to (P)NP from (P)P-3.
In a related action, Moody’s downgraded ZAR Sovereign Capital Fund Propriety Limited’s foreign currency, backed senior unsecured debt rating to Ba1 from Baa3 and maintained its negative outlook. ZAR Sovereign Capital Fund Propriety Limited is a special purpose vehicle whose debt issuance is ultimately the obligation of the South African government.
All South Africa’s long-term country risk ceilings were revised down by one notch. Its long-term local-currency bond and bank deposits ceilings were revised down to A3 from A2, and the long-term foreign-currency bond ceilings to Baa1 from A3. The short-term bond foreign-currency ceiling remained unchanged at Prime-2. Moody’s also lowered the long-term foreign-currency bank deposits ceilings to Ba1 from Baa3 and the short-term foreign-currency bank deposits ceiling to Not Prime(NP) from Prime-3.