Moody’s places SA on review

Johannesburg – Just hours after S&P dropped SA’s

credit rating to junk, Moody’s Investors Service says it is replacing SA on

review, and may downgrade the country.

In a surprise move on Monday night, S&P downgraded

South Africa’s credit rating to junk, less than a week after a Cabinet shuffle.

The rating, which comes after President Jacob Zuma

unceremoniously axed Finance Minister Pravin Gordhan and his deputy late last

Thursday – sending the rand down at least 5 percent – is almost three months

ahead of its scheduled ratings action.

In a statement, the global credit agency, says “the

executive changes initiated by President Zuma have put at risk fiscal and

growth outcomes”.

The rand fell as much as 2 percent on the news.

In a statement on Tuesday morning, Moody’s – which has SA

two notches above junk – said it was pondering a downgrade. Fitch is the only

international rating agency yet to make a statement. It has SA a level above

junk.

Moody’s was set to review SA this month, while S&P

will review the country again on June 2. S&P’s earlier move was sparked by the

Cabinet shuffle.

Read also:  S&P first to give SA 'junk' rating

Moody’s notes its decision to initiate a review for

downgrade was prompted by the abrupt change in leadership of key government

institutions.

That action has raised questions regarding:

- progress on reforms previously identified as essential

to sustain South Africa's fiscal and economic strength, and the effectiveness

of South Africa's policymaking institutions; and

- the more immediate implications for growth and public

debt given the potentially negative impact on fragile domestic and external

investor confidence.

“The review will allow Moody's to assess these risks and

if the changes in leadership signal a weakening in the country's institutional,

economic and fiscal strength,” it says.

Moody’s adds changes within a government do not generally

signal material changes in a country's credit profile.

“Here, however, the timing and scope of the reshuffle

raises questions over the signal they send regarding the prospects for ongoing

reforms, the underlying strength of South Africa's institutional framework, and

the fragile recovery in the country's economic and fiscal position.”

It explains the review will assess the likelihood of

changes in key areas of financial and macro-economic policymaking as well as in

strategic structural areas such as energy policy.

Moody's could downgrade South Africa's issuer rating if it

were to conclude that recent events signalled a deterioration in the

effectiveness of government or in the credibility of its policy-making; and

relatedly in the country's economic or fiscal strength.

However, it could hold the rating if it decided the impact

of recent events on government fiscal and economic policies and on the

economy's forecast and potential growth was likely to be minimal.

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