Moody’s May Cut South Africa to Align With Others: Citi

Moody’s Investors Service may lower South Africa’s credit rating to align it with those of Standard & Poor’s and Fitch Ratings, according to Citigroup Inc.

“They are on negative watch, so it’s likely getting a ratings downgrade from them, it’s just a question of when,” Gina Schoeman, Citi’s economist for South Africa, told reporters in Johannesburg today. Next week’s mid-term budget, economic growth outcomes and policy direction from the government may impact the timing of a downgrade, she said.

Moody’s was the first of three rating companies to cut South Africa’s creditworthiness in September 2012 for the first time since 1994, concerned by violent strikes in the mining industry, slower economic growth and the government’s ability to narrow the budget deficit. S&P followed a month later and Fitch in January 2013.

South Africa’s debt is rated by Moody’s at Baa1, the third lowest investment grade level and one step above S&P and Fitch’s rank of BBB. Moody’s rating has exceeded the other two companies by this magnitude since 2000.

Finance Minister Pravin Gordhan will probably lower his economic growth projection for this year to 2.1 percent from 2.7 percent when he gives his mid-term budget speech on Oct. 23, according to the median estimate of 29 economists surveyed by Bloomberg.

Slower growth may add to pressure on the budget deficit, which Gordhan predicted in February would reach 4.6 percent of gross domestic product in the year through March 2014, down from

5.1 percent in the previous fiscal year. The shortfall is forecast to narrow to 3.1 percent in the 2016 fiscal year.

The credibility of Gordhan’s deficit forecasts will be crucial for the credit rating outlook, Schoeman said.

“The optimism around the consolidation of the budget deficit over the last couple of years, has deteriorated year after year,” she said. “I do not think we will move into junk status, but we are getting very close.”

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