Moody’s Investors Service said while South Africa’s Baa1 credit rating remains under pressure, that doesn’t mean it will necessarily be downgraded.
The economy is still struggling to recover from recession and the nation’s fiscal strength is weakening, Kristin Lindow, senior vice president at Moody’s, said at a conference in Johannesburg today.
“The economy just can’t quite recover from the recession, even though the recession was very mild here,” she said. “The indicative rating range of A2 to Baa1 does belie negative pressure, but it does not necessarily mean that the rating will be downgraded.”
Moody’s cut South Africa’s rating on September 2012 to the third-lowest investment grade level and has kept the outlook on negative since November 2011. The ratings company doesn’t like to retain a non-stable outlook for a long time, Lindow said.
“The issues that define our negative outlook now has to do with issues, in some respects, outside of the government’s control,” she said. “It has to do with the problems in the mining sector.”
A strike by more than 70,000 workers at the South African operations of the world’s three largest platinum producers that started on Jan. 23 may undermine investor sentiment and is negative for the credit rating, Lindow said.
“South Africa’s reputation has been taking a hit relatively frequently because of these prolonged strikes,” she said.
The rand fell 0.2 percent to 10.3269 against the dollar as of 1:17 p.m. in Johannesburg today, paring its gain this year to 1.6 percent.
Moody’s said yesterday the decisive election win by the ruling African National Congress on May 7 is positive for the nation’s credit as it signals policy continuity.
Lindow said President Jacob Zuma’s new cabinet will indicate whether “to expect alterations to the fiscal guidelines.” Moody’s will hold its next review on South Africa’s rating after Zuma appoints his cabinet, she said.
The ANC will face a much tougher contest in the next election in five year’s time unless it can combat corruption and make faster progress in boosting economic growth and creating jobs, Lindow said.