DA: Moody’s decision a welcome stay of execution for SA
Moody’s Investor Services’ decision to confirm an investment grade rating, which remains two notches above junk status, for South Africa is a welcome “stay of execution”, the Democratic Alliance said on Sunday.
“However, Moody’s did assign a ‘negative outlook’, drawing attention to the ‘implementation risk’ associated with pushing through the structural reforms necessary to boost economic growth and create jobs in South Africa,” DA spokesman David Maynier said.
Structural reforms necessary to boost economic growth and create jobs as well as turnaround state-owned enterprises had got bogged down largely as a result of political dynamics in South Africa, he said.
During his budget speech, Finance Minister Pravin Gordhan promised reform, including board strengthening, of South African Airways (SAA).
However, SAA board chairwoman Dudu Myeni seemed to have defeated the reform agenda and remained in her position while the airline’s annual report and financial statements had still not been tabled in Parliament, Maynier said.
And President Jacob Zuma’s visit to SAA this week appeared to have been less about promoting reform of the airline than about sabotaging reform of the airline.
“Whatever the case, this does not bode well for the ratings decision to be announced by Standard and Poor’s on or about 3 June 2016. In the end, Moody’s decision remains a welcome stay of execution for South Africa,” he said.
On Friday, Moody’s confirmed South Africa’s Baa2 long-term government bond and issuer ratings as well as its (P)Baa2/(P)P-2 shelf and MTN program ratings, and assigned a negative outlook.
The rating actions concluded a review for downgrade that commenced on March 8, 2016, the ratings agency said in a statement on its website.
“The confirmation of South Africa’s ratings reflects Moody’s view that the country is likely approaching a turning point after several years of falling growth; that the 2016/17 budget and medium-term fiscal plan will likely stabilise and eventually reduce the general government debt metrics; and that recent political developments, while disruptive, testify to the underlying strength of South Africa’s institutions.”
The negative outlook spoke to the implementation risks associated with the structural and legislative reforms that the government, business, and labour recently agreed to restore confidence and encourage private sector investment, upon which Moody’s expectations for growth and fiscal consolidation in coming years – and hence the Baa2 rating – relied.
In a related move, Moody’s also confirmed the Baa2 rating of ZAR Sovereign Capital Fund Propriety Limited, a special purpose vehicle whose debt issuance is ultimately the obligation of the South African government, and assigned a negative outlook.
Moody’s made no changes to South Africa’s local or foreign currency country ceilings, which remain at A1 for local currency debt and deposits, A2/P-1 for foreign currency debt, and Baa2/P-2 for foreign currency bank deposits.