South Africa: Reprieve for Rand as Nation Dodges 'Junk' Status Rating

(file photo).
4 November 2019

Cape Town — The rand has made strong gains against the dollar in early trading hours on Monday after avoiding a "junk status" credit rating from Moody's Investors Service on Friday, Business Tech reports.

On Friday, Moody's revised its South African outlook from stable to negative. This rating - Baa3 - is the lowest category in the investment-grade stable. Moody's said in a statement: "The challenges the government faces are evident in the continued deterioration in South Africa's trend in growth and public debt burden, despite ongoing policy responses." Bank of America expects that the Baa3 rating will be cut in February 2020 after a budget statement from the government.

According to New York Mellon Corp., the country risks losing its place in the FTSE World Government Bond Index if Moody's further cuts the rating. This would lead to outflows as high as U.S.$15 billion and investor sell-off, writes Fin24.

Moody's announcement comes after Standard & Poor's and Fitch both shifted South Africa's status to junk in 2017. The Treasury responded by saying that the rating affords a "narrow window to demonstrate faster and concrete implementation of reforms". A U.S.$9.3 billion plan to bail out Eskom is seen as the biggest risk to the economy - the embattled power utility is saddled with U.S.$30 billion of debt.

AllAfrica publishes around 500 reports a day from more than 100 news organizations and over 500 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.