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SA ‘resilient to shocks’ but credit profile likely to erode – Moody’s

SA ‘resilient to shocks’ but credit profile likely to erode – Moody’s

Credit rating agency Moody’s says while SA’s credit profile is “resilient to shocks” that support its investment-grade rating, the country’s credit profile is likely to continue to erode.

South Africa faces weak long-term growth despite its favourable government debt structure, it said.

Moody’s is the only international credit rating agency that has not downgraded SA to junk, keeping SA at Baa3 – the last rung of investment grade. The agency published a post-election credit report on South Africa on Thursday morning. The report is not a ratings action.

Moody’s painted a gloomy picture of the country’s GDP growth rate, which was expected to remain one of the lowest among Baa3-rated sovereigns. It said government’s debt burden was expected to rise to 65% of GDP by 2023 and more than 70% when including guarantees to debt-laden power utility Eskom.

“While South Africa has strengths, including a favourable government debt structure and a large pool of domestic investors, in the absence of effective policy change, the sovereign’s credit profile will most likely continue to erode, with fiscal strength weakening and growth remaining low,” said Vice President – senior credit officer Lucie Villa and co-author of the report

“Fading prospects of policies that will sustain fiscal and economic strength, alongside any signs of diminishing resilience to shocks, would put downward pressure on the country’s rating.”

The agency did not say when it would be reassessing South Africa’s sovereign credit rating. Analysts have predicted this may happen after President Cyril Ramaphosa announces his Cabinet.