Moody’s this week published its latest Credit Opinion report on the government of South Africa. While the report isn’t a rating action, it does give an update on South Africa’s credit strengths and weaknesses:
Credit strengths
- Good external liquidity that reduces vulnerabilities arising from financial market and exchange rate volatility and a relatively large current account deficit
- Complementary monetary, fiscal and exchange rate policies
- Extremely rich natural resource base
- A deep and liquid domestic financial market and well-capitalised banking system
- Dominant role in the African economy
Credit challenges
- Regaining control over public finances in advance of inevitable interest rate increases from current lows
- Weakening labour productivity and strike-related business losses exacerbated by declining terms of trade
- Weak national savings and infrastructure constraints that contribute to low growth potential
- High unemployment and wide income disparities that contribute to social tensions
- HIV/AIDS prevalence and its adverse socio-economic consequences
Moody’s also gives investors an idea of what could lead to an upgrade or downgrade for the country:
Upgrade
The successful implementation of planned structural reforms to enhance potential growth and reduce exposure to external shocks, combined with continued fiscal prudence, could exert upward pressure on the rating. Reforms resulting in higher domestic savings and investment rates and sustainable, stronger growth, alongside continued restraint in public debt accumulation and the ongoing implementation of the macro- and micro-level reforms embedded in the NDP, would also be credit positive.
Downgrade
South Africa’s rating could be downgraded if the official commitment to fiscal consolidation and debt stabilisation falters, or if the investment climate deteriorates further, imperiling the availability of external financing for the current account deficit.
View the Moody’s South Africa website here
