Ratings agencies note Ramaphosa's election, but swift upgrade unlikely

Cape Town - International ratings agencies which have given SA Inc a tough time in recent years with repeated downgrades, have cautiously welcomed the election of Cyril Ramaphosa as SA's new president. 

They have not yet, however, indicated whether they will upgrade SA's sovereign credit ratings, and analysts on Thursday downplayed this possibility, saying the agencies would need more time.   

Ramaphosa was, as expected, elected as SA's 5th president of the democratic era on Thursday afternoon in Parliament and has since been sworn in. Now former president Jacob Zuma had announced his resignation in a televised address on Wednesday night, meaning that a scheduled vote of no confidence in him fell away.  

“The new leadership could bring confidence and faster implementation of key reforms already undertaken,” said S&P Global Ratings in a statement. The agency has SA's sovereign debt at non-investment grade. 

“However, Ramaphosa and his administration will require time to design and implement measures to improve economic growth and stabilise public finances, given the structural and institutional challenges that South Africa faces.”

Moody’s said it was "closely monitoring developments in South Africa" and was focused on the policy implications of ongoing changes in leadership.

"The key point from a credit perspective will be the new leadership’s response to the country’s economic and fiscal challenges and progress in implementing reforms addressing them,” it said. 

Moody’s is the only one of the three major ratings agencies that has both South Africa’s foreign currency and rand-denominated debt at investment grade.

A spokesperson for Moody's said the agency would not immediately be adding to its Thursday statement. The date of its next ratings action for SA's government is March 23. 

A step in the right direction  

Bianca Botes, of Peregrine Treasury Solutions, said on Thursday afternoon that ratings agencies would view Ramaphosa becoming president as a "step in the right direction for political leadership within the country, as well as potentially South Africa’s greater economic and foreign investment landscape".

“They will be aware, however, that structurally there is still a great deal of work to be done,” she added.

After Ramaphosa was elected president on Thursday, he delivered a short speech. He is scheduled to deliver his maiden State of the Nation Address on Friday. 

Elize Kruger, a senior economist at NKC African Economics, said the handover from Zuma to Ramaphosa would be seen as a welcome change by ratings agencies, given they viewed Zuma as complicit in state capture. 

“Concerted efforts are needed to improve governance at state-owned enterprises and in that light, the fact that Ramaphosa has already overseen the appointment of a new board at cash-strapped Eskom will definitely be a positive,” she said.

“Given that government has guaranteed a substantial proportion of SOE debt, progress in addressing other SOE’s management trouble is of pertinent importance for South Africa’s credit rating.”

She cautioned, however, that it was still to early to gauge how Ramaphosa's election would affect SA's credit ratings.

"Fitch and S&P will most probably wait and see and keep our current sub-investment credit ratings unchanged for now; they would need more evidence of implementation and a stronger economic recovery before they would be convinced that we could be upgraded again," she said.   

“On Moody’s, there is a growing chance that they might decide to give us the 'benefit of the doubt' given recent developments and not downgrade us further," she said, adding that the outcome of the budget next week in terms of SA's fiscal deficit and debt levels remain important in this reagrd. 

Maarten Ackerman, the chief economist of Citadel, said fiscal numbers and metrics still suggest SA should remain below investment grade. Demonstrating enough improvement to justify an upgrade will take time, he said.  

"S&P and Fitch may adopt a more favourable view of South Africa’s economic prospects, but are unlikely to upgrade the country’s credit rating," he said.  

"The chances of a downgrade from Moody’s are slimmer, although they will also be monitoring SONA, the budget speech and any additional changes in Parliament." 

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