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Moody’s: SA’s outlook now “negative”

NewsLite by NewsLite
2nd Nov 2019
in Economy
2 min read
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A sign for Moody's rating agency is displayed at the company headquarters in New York, September 18, 2012. AFP PHOTO/Emmanuel Dunand / AFP PHOTO / EMMANUEL DUNAND

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The country is currently at a Baa3 rating, the lowest level of investment board.

The reason, Moody’s said in a statement on Friday, is South Africa’s dismal growth prospects and growing public debt.

“The decision to change the outlook from stable to negative stems from the risk that the government does not intend to stop the decline of the country’s finances through growth and fiscal consolidation,” the statement says. Moody’s is also concerned about what they regard as the government’s lack of “political capital”.

Finance Minister Tito Mboweni in his mini-budget speech on Wednesday moved the government’s growth prospects to 0.5% of gross domestic product (GDP). Mboweni also warned that, as things stand, South Africa’s debt burden to its gross domestic product will be over 70%.

“The continual decline in South Africa’s economic growth and increasing debt is indicative of the challenges facing the government. This is despite ongoing policy changes, ”says Moody’s.

Moody’s also refers to the unemployment rate of more than 29% and investors’ distrust of government as some of the lasting barriers to economic growth.

The credit rating agency admitted that the government had put in place measures to tackle unemployment and policy uncertainty, but doubted whether those measures would have the desired effect. They also wonder if the government has enough support to implement these policies.

“The negative outlook serves as evidence of Moody’s growing concern that the government does not have the necessary political capital to implement these policies and that all of their plans will largely fail to bring about economic growth,” says Moody’s.

In a statement on Friday, the DA said Moody’s decision to change South Africa’s outlook to negative shows that Mboweni’s budget speech did not do enough to bring debt under control or manage the budget deficit. “It serves as another warning of the dangers that lie ahead if the government does not implement urgent interventions.”

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