Moody’s Affirms South Africa’s Baa1 Rating on Fiscal Discipline

Moody’s Investors Service affirmed South Africa’s investment-grade credit rating, citing the government’s commitment to fiscal discipline and plans to reduce labor disputes and boost development.

South Africa is rated Baa1, the third-lowest investment-grade level and on par with Mexico, Thailand and Russia. Moody’s maintained a negative outlook on the nation’s debt, citing concerns about the outlook for mining, South Africa’s biggest export earner, and increasing pressure on the government to raise spending before next year’s parliamentary elections.

Finance Minister Pravin Gordhan’s “renewed commitment to spending restraint” will stabilize government debt at levels comparable with similarly rated peers, Moody’s said in an e-mailed statement dated yesterday. “The spending ceiling is now a firmly entrenched anchor for fiscal policy.”

In his February budget speech, Gordhan pledged to cut spending to reduce the budget shortfall, estimated at 4.6 percent of gross domestic product for the year through March. Moody’s, Standard & Poor’s and Fitch Ratings have downgraded the nation’s debt since September, concerned by a slowing economy and rising spending pressures. Moody’s and S&P have a negative outlook on the rating, indicating they may lower it further.

The government’s adoption of the National Development Plan, which aims to reduce poverty and inequality, and the ruling African National Congress’ rejection of calls to nationalize mines supported South Africa’s rating, Moody’s said. A framework agreement between government, labor unions and mining companies may reduce labor disputes in the industry and lead to more investment and growth, it added.

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net

To contact the editor responsible for this story: Vernon Wessels at vwessels@bloomberg.net

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