Once again, Finance Minister Pravin Gordhan has shown his worth and competence. This time, the honorable minister has saved the country from junk status – for now.
The minister and Chief Justice Mogoeng Mogoeng saved South Africa from a Moody’s Investors Service downgrade following the rating agency’s decision to keep the country’s credit rating unchanged.
This announcement brought relief at the Treasury, where Gordhan and his team fought a four-month battle gallantly in order to strengthen confidence in SA Inc.
Moody’s announcement is coming after the rating agency decided on March 8 to place South Africa on a review for a downgrade and the visit by Moody’s analysts in the middle of March.
However, irrespective of Moody’s rating, the agency pushed its outlook button from stable to negative, paving the way for the rating to be downgraded in the months ahead. The decision to keep the local rating on a negative outlook recognized the downside risks associated with the growth, fiscal and political outlook.
The agency however expressed hope that the country will have higher local growth and more reliable power supply next year.
Moody’s assesses the South African government’s ability to repay its debt at two notches above sub-investment grade or “junk” status, while Standard & Poor’s and Fitch Ratings both have the country one notch above junk status.
It is pertinent to note the three reasons why Moody’s affirmed the ratings and they include:
1. South Africa’s economic growth will start recovering beyond 2016 after reaching its trough this year.
2. The adoption of more aggressive consolidation measures in the 2016 Budget will increase the likelihood that general government debt to GDP will stabilize in the current year.
3. According to Moody’s, the recent political developments are testament to South Africa’s institutional strength compared to its peers
Commenting on the development, former finance minister Trevor Manuel expressed delight with the rating agency’s decision and attributed it to Gordhan and his team’s hardwork.
Manuel however opined that maintaining the rating will not be easy as “We are not seeing a set of actions that reflect the spirit of our laws and a political direction based on sound management…
We have to pause and reflect and say: are we holding ourselves accountable?”, he added.
Furthermore, “In Moody’s opinion, the Constitutional Court judgment against the president over the misuse of public funds, and Parliament’s rejection of the ruling of the Public Protector and, more recently, the high court ruling to reinstate corruption-related charges against the president … attest to the strength and independence of South Africa’s Constitution and judicial system, and renewed attentiveness to bringing corruption out into the open and maintaining the rule of law.”
The agency added that the return of Gordhan to National Treasury, after Nhlanhla Nene was initially replaced by David van Rooyen, “demonstrated determination to bring the public finances under control”.
Moody’s growth forecast for next year, at 1.5%, is one of the more optimistic and compares with Nedbank’s estimate of 0.9%, the World Bank’s view of 1.1%, International Monetary Fund’s forecast of 1.2% and National Treasury’s projection of 1.7%.
However, experts believe the move by Moody’s could also encourage the other agencies to be more cautious about downgrading South Africa’s credit rating further.
Meanwhile, Standard & Poor’s is set to review and publish its latest report on South Africa next month.