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SA Outlook Lowered to Negative| News by Staff Reporter
Moody’s cites political risks in South Africa as the cause
Moody’s ratings agency has lowered its outlook on South Africa’s sovereign credit rating from stable to negative, which could lead to a downgrading of SA’s investment grade rating.
According to the ratings agency populist pressure and internal strains within the ruling party, the African National Congress (ANC), as well as the party’s ties with its political partners could affect attempts to lower budget deficits and meet current debt targets.
This move by Moody’s could mean that it’s next A3 investment grade rating for South Africa is downgraded, resulting in an increase in the cost of borrowing for SA.
The ratings agency said, “Spending beyond the substantial amounts already budgeted in response to such demands could push debt to levels more commensurate with lower-rated sovereigns,” adding that the next two years will be very challenging for SA’s political system.
As reason for downgrading the outlook on SA’s sovereign credit rating Moody’s also cited “the continued negative impact on private investment deriving from calls for interventionist actions aimed at quick fixes for black economic opportunities.”
Leadership’s “unwillingness to reject demands from certain segments of the political spectrum for more activist policy interventions” posed a threat to South Africa’s economic prospects, the agency added.
In addition to this Moody’s said the global economic downturn had also played a role in its decision to revise SA’s outlook as the slower economic growth being experienced would not be enough to foster the kind of employment creation that would ease social tensions.
Bulelwa Boqwana, spokesperson for the Treasury, said Moody’s concern had been “overplayed” and that there was nothing to suggest that any changes would be made to the fiscal framework.
“There are debates in the political sphere but you have to differentiate between debate and policy changes. Despite these political noises we’ve always maintained a responsible fiscal framework which reflects the economic environment,” she said.