{"id":144158,"date":"2019-08-22T14:47:39","date_gmt":"2019-08-22T12:47:39","guid":{"rendered":"http:\/\/www.myza.co.za\/south-africa-close-to-junk-status-from-all-three-rating-agencies-what-would-follow-the-conversation\/"},"modified":"2019-08-22T14:47:39","modified_gmt":"2019-08-22T12:47:39","slug":"south-africa-close-to-junk-status-from-all-three-rating-agencies-what-would-follow-the-conversation","status":"publish","type":"post","link":"https:\/\/www.myza.co.za\/press\/south-africa-close-to-junk-status-from-all-three-rating-agencies-what-would-follow-the-conversation\/","title":{"rendered":"South Africa close to ‘junk status’ from all three rating agencies. What would follow? | The Conversation"},"content":{"rendered":"

South Africa close to ‘junk status’ from all three rating agencies. What would follow?<\/a>: <\/p>\n

Moody's, the only rating agency that keeps South Africa above junk, is scheduled to review its credit rating in November 2019.<\/span> Shutterstock<\/span><\/span><\/figcaption><\/figure>\n

The rating agency Fitch recently revised the outlook on South Africa\u2019s long-term foreign-currency issuer default rating down from \u201cstable\u201d to \u201cnegative\u201d. A credit rating outlook indicates the potential direction of the country\u2019s rating over the intermediate term, typically six months. <\/p>\n

Fitch pointed to the expected increase in the government debt-to-gross domestic product (GDP) ratio. This would make it more difficult to stabilise public debt. The country\u2019s public debt has been increasing due to lower-than-projected tax revenue growth on the back of weak economic growth and the R59bn bailout for the power utility, Eskom.<\/p>\n

South Africa\u2019s long-term foreign-currency government bonds are rated BB+ by Fitch and BB by Standard & Poor\u2019s. This means that the government bond is classified as substantially risky. Moody\u2019s rating is Baa3, representing a moderate credit risk investment grade.<\/p>\n

There is no indication that South African will soon curb its historically high and rising debt levels. Credit rating agencies have sounded the alarm about South Africa\u2019s finances over the past five years. They have consistently called on government to stabilise the rising debt-to-GDP ratio, address high unemployment and low economic growth rate, and to restructure state-owned enterprises. <\/p>\n

A lack of significant reforms led to the country being downgraded to junk status by both Standard & Poor\u2019s and Fitch in April 2017. Only Moody\u2019s has kept South Africa one notch above junk status. But for how long?<\/p>\n

The revision by Fitch is significant. Looking at the experiences of some other countries in Africa as well as Brazil, the data suggests that when two of the three major ratings agencies downgrade a country to \u201cjunk\u201d, it usually takes between six months to two years for the final agency to follow suit. Considering that both Fitch and S&P downgraded South Africa two years ago, it is likely that Moody\u2019s will downgrade South Africa soon.<\/p>\n

This would see South Africa\u2019s government bond falling out of the Citigroup World Government Bond Index \u2013 a major global index that tracks investment-grade debt. All fund managers with investment grade mandates will be forced to offload South Africa\u2019s debt. In turn this would wipe out capital inflows at a time when the country is in need of more foreign investment to close its current account deficit. <\/p>\n

What\u2019s happened elsewhere<\/h2>\n

Circumstantial evidence from other countries that were recently downgraded to unanimous \u201cjunk status\u201d shows that the after effects can hasten an economic crisis.<\/p>\n