(Adds government reaction, analyst comment)
JOHANNESBURG/NEW YORK, Sept 27 (Reuters) – Moody’s Investors
Service cut South Africa’s government bond rating by one notch
to Baa1 from A3 on Thursday, citing worries about the country’s
institutions as well as future political stability and room for
policy maneuvering.
The main driver of the downgrade “is Moody’s lowered
assessment of institutional strength to ‘moderate’ from ‘high,’
an important factor in the rating agency’s judgment of a
sovereign’s economic resiliency,” it said in a statement.
The rating agency also cited concerns around the negative
investment climate – from creaking infrastructure to worries
about South Africa’s future political stability.
“Government remains committed to taking the necessary
measures to lift the growth potential and competitiveness of the
South African economy,” the country’s government said in a
statement.
“The core of South Africa’s policies remains stable and
predictable.”
Investor sentiment has been soured by a series of wildcat
strikes over the past weeks that have debilitated production in
the world’s top platinum producer and No. 4 gold producer, and
the government has been criticized as ineffective and out of
touch.
The violent rise of AMCU – an upstart union in the sector –
is posing the most serious challenge to the unwritten pact at
the heart of the post-apartheid settlement: that unions aligned
with the ruling African National Congress (ANC) deliver modestly
higher wages for workers, while ensuring labor stability for big
business.
“As the strikes in South Africa spread both within the
mining industry and to elsewhere in the economy we think the
prospect for further downgrades from other agencies remains very
high,” said Peter Attard Montalto, an emerging markets economist
at Nomura.
Continued…
