Moody's skips South African ratings review

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Moody's se hoofkantoor in New York. Foto: Getty Images
Moody's se hoofkantoor in New York. Foto: Getty Images

The credit agency Moody’s has skipped a scheduled review of South Africa's sovereign rating.

The announcement was expected late on Friday night. Instead, the agency published a notice to say that the ratings for South Africa - and other countries like Denmark and Italy - were not updated.

The next ratings review is scheduled for 19 November this year. However, Moody's says that it may change ratings on any other date if there is "a material change in credit condition or other event".

Last year, Moody’s stripped South Africa of its investment grade rating, downgrading government bonds to "junk". A "junk" rating means there's a bigger chance that the government won’t be able to pay back its debts.

Moody’s currently rates South Africa at Ba2 (two rungs below investment grade), with a negative outlook – which means the next step could potentially be another downgrade.

In February, the agency raised concerns over government spending on civil servant wages and interest payments on its ballooning debt. 

Economists do not expect a further downgrade soon, however.

While still strained, South Africa’s government finances currently look in better shape than expected. The budget deficit (R552 billion) for the past year was 11.2% of GDP, Bloomberg reported this week. This was far lower than government’s own projections, and thanks to surprisingly strong tax income, as well as subdued state spending.

Meanwhile, the rand was trading at its best level in 16 months, and was last at R14.08/$.

The currency strength is due in part to booming commodity prices, with raw materials accounting for a third of South Africa’s exports. As the world economy recovers, China continues to power ahead and the US readies massive infrastructure investments, these prices have rallied. South African miners have benefitted from stronger platinum and palladium prices, while on Friday, gold spiked to $1 840 per ounce, its highest level since February.

The dollar also took a hit after shocking US employment numbers were released on Friday. Only 266 000 new jobs were created in April, after the markets expected around one million. The unemployment rate rose to 6.1%.

The article has been updated with the next scheduled rating review.

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