South Africa: Moody's Downgrade Looks Certain, but Budget Aims to Stave Off More Downgrades

South African Finance Minister Tito Mboweni prepares to deliver his Budget speech on February 26, 2020.

The die is cast: Finance Minister Tito Mboweni's Budget is unlikely to prevent ratings agency Moody's from pulling the trigger in March on South Africa's last investment-grade rating. But the Budget is laying the groundwork to stave off a further descent into junk.

Tito Mboweni's 2020/21 Budget review gets straight to the point with the bad news.

"Debt is not projected to stabilise over the medium term," it says. That sends a clear signal to Moody's: dispense with the fiction that South Africa's debt is investment-grade worthy and downgrade its credit rating to junk. The markets did so long ago, taking their cue from the cuts to junk already inflicted by Fitch and Standard & Poor's. This is why South African bond yields, and hence its debt servicing costs, are generally higher than those of its emerging market peers.

There is little in the Budget for Moody's to maintain the investment-grade charade. The economic growth estimate for 2019 has been slashed to just 0.3% from 0.5% previously - Stats SA will unveil the figure in early March - and the forecast for 2020 is a paltry 0.9%. Even that looks optimistic. Moody's forecast for example is 0.7%. For 2021, the...

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