South Africa: Do Credit Rating Reviews Make Any Sense in the COVID-19 Context?

(file photo).
opinion

As South Africans prepared for a 21-day lockdown, a sovereign credit rating downgrade that had hung like the Sword of Damocles over the country was pushed to the back of the collective consciousness. On Friday, the sword fell, dumping the country into junk status.

SA's downgrade to credit-risk junk status could not have come at a worse time and begs the question of whether credit rating reviews make sense in a time of crisis.

With Moody's following its peer agencies and rating the country below investment grade, South Africa has fallen out of important bond indices, making it much more expensive for the country to borrow money.

The downgrade has already had consequences. Following the announcement, the rand lost nearly 2% against the dollar, which meant a loss of more than 6% since the beginning of March.

Over the next week, we will see whether the markets had already priced the downgrade in, as some analysts suggested.

Even if the downgrade is priced in, the move will result in further pain for an economy that was already shrinking prior to the lockdown and will undoubtedly have a negative impact on the national budget.

The irony is that Covid-19 has forced...

More From: Daily Maverick

Don't Miss

AllAfrica publishes around 900 reports a day from more than 130 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 allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.