SA’s credit rating unlikely to change in foreseeable future – Moody’s

2014-01-07 16:38

South Africa’s credit rating is likely to be constrained for the foreseeable future due to high levels of poverty and unemployment, Moody’s Investors Service has said.

Wide income disparities, poor education standards and high crime levels are also limiting the rating within the Baa range, the New York-based company said in a report yesterday.

Moody’s lowered the rating in September 2012 to Baa1, the third-lowest investment-grade level, with a negative outlook, as economic growth slowed and the government’s budget deficit widened. Standard & Poor’s and Fitch Ratings have a BBB assessment on the nation’s debt, one level below Moody’s.

South Africa’s credit strengths included “manageable albeit rising public debt”, complementary monetary, fiscal and exchange rate policies and a strong natural resource base, Moody’s said. Poor labour productivity, a weak national savings rate and substantial infrastructure constraints are credit challenges, it said.

Although higher savings and investment rates may help boost the ratings, a downgrade could occur “should the government’s direct debt rise much above 45% of gross domestic product”, Moody’s said.

The unemployment rate was 24.7% in the third quarter, and the government is projecting that gross debt will climb to 47.7% in the year through March 2017.

Moody’s said the central bank was unlikely to raise interest rates until the end of this year, and it does not expect the government to post budget surpluses until the fiscal year through March 2016 at the earliest.

The South African Reserve Bank has kept its key rate unchanged at 5% since July 2012.

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