Policy uncertainty and political turmoil have increased in the last two months
as the nation’s anti-graft ombudsman instructed lawmakers to change the central
bank’s mandate, the mines minister published new regulations that the industry
says undermine investment and President Jacob Zuma’s defeat of a no-confidence
motion in parliament weakened the rand.
South Africa entered a recession in the first quarter.“Further delays in growth-enhancing reforms would be suggestive of such a
shift,” Moody’s analysts including Zuzana Brixiova said in a credit-opinion
report.
“Downward pressure could also develop if liquidity pressures begin to
re-emerge at state-owned enterprises that would elicit pronounced government
intervention, be it through the activation of guarantees or other measures.”
Also read: Moody’s consider changing South Africa’s rating outlook
In June, Moody’s cut its assessment on South Africa’s local-
and foreign-currency debt to one level above junk after a March cabinet shuffle
in which Zuma fired Pravin Gordhan as finance minister. The president’s move
prompted S&P Global. Ratings and Fitch Ratings Ltd. to cut the nation to sub- investment grade
within a week.
Rating companies are concerned about rising debt and deteriorating governance
at state-owned entities such as national carrier South African Airways and
power producer Eskom Holdings, saying that they weigh on the country’s debt assessment.
SAA asked the government for R10bn ($754m) as
part of a recapitalisation plan aimed at returning it to profit, Finance
Minister Malusi Gigaba said last month. Eskom, which previously received a R23bn state bailout, will get more government support, he said.
Also read: Rand stays firm as downgrade fears diminish
“The future trajectory of the rating will depend on the government’s
success in safeguarding South Africa’s institutional, economic and fiscal
strength,” Moody’s said.
The rand strengthened 0.4% to 13.2659 by 10:30am in Johannesburg,
making it the best-performing major currency against the dollar after
Australia’s on Tuesday.