CAPE TOWN – Credit rating agencies are now expected to wait for South Africa's mid-term budget for further direction on the country's credit standing.
On Friday, Moody's announced it has placed South Africa at one level above sub-investment grade, with a negative outlook.
Standard & Poor’s Global has the country's foreign debt at junk, with a negative outlook and Fitch has both the rand and foreign denominated debt at junk, with a stable outlook.
Sub-investment grade makes borrowing money to fund the government's budget deficit much more difficult.
Moodys' one notch downgrade was anticipated, but the negative undertone of its accompanying statement came as a bit of a surprise to some analysts.
Economist Kamilla Kaplan says, “The negative outlook typically signals that the next ratings move would be another downgrade and typically ratings agencies would keep us on negative for about 12 months.”
Senior economics lecturer Lumkile Mondi says credit rating agencies will keep a close eye on Treasury decisions.
“Our most important date is going to be our medium-term budget policy statement. That will be a signal as to whether South Africa gets downgraded further.”
Lumkile, like some other experts, states he is not very optimistic that government will be able to turn the tide, saying the African National Congress's political dramas have eroded its credibility.
ALL EYES ON GIGABA
Following Moody’s announcement, the Treasury said it recognised that the agency had cited the weakening of South Africa’s institutional strength.
It said that while Moody’s rating is still investment grade there are more risks of downgrades.
Finance Minister Malusi Gigaba said he would give clarity on Monday, on the way forward for the country's economy, but later postponed the briefing at the eleventh hour with his office explaining that he had to attend a meeting with the African National Congress leadership on the same day.
At the time of his appointment, Treasury said while the leadership of the finance portfolio has changed, government's overall policy orientation remains the same.
In a statement released just days after S&P lowered South Africa sovereign credit rating to BB+ or junk status, Treasury went on to say the country is committed to a predictable and consistent policy framework, which responds to changing circumstances in a measured and transparent fashion.