Time for a negative outlook on South Africa?
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“It is not looking good.” This was South African finance minister Tito Mboweni on Thursday, assessing the odds of a positive outcome from a review by Moody’s due today.
The fear is that the rating agency – the last of the big three to maintain an investment-grade rating for South Africa – will change its outlook from stable to negative, paving the way for a downgrade to ‘junk’.
This would add even more problems to an already struggling economy, including South Africa’s removal from the benchmark World Government Bond Index.
Moody’s has stuck to its Baa3 rating – one notch above ‘junk’ – despite a consistently deteriorating outlook, banking on reforms promised by president Cyril Ramaphosa following the doldrums of the Jacob Zuma years.
It will be difficult to give South Africa the benefit of the doubt this time.
The review comes two days after an exceptionally sombre mid-term budget speech by Mboweni.
The expected budget deficit for this fiscal year has soared from 4.5% in February to 5.9%, while the growth forecast has been cut from 1.5% to 0.5%. Debt is expected to rise to 60.9% of GDP, and 71.3% by 2022/23. Meanwhile, the economic damage from struggling state-owned enterprises – especially power utility Eskom – continues.
To quote Mboweni, it is not looking good for the stable outlook.
This report reflects the views of the author alone, not those of How we made it in Africa.
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