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Moody’s downgrades South Africa’s sovereign credit rating

Moody's explains why Nigeria's credit rating is exposed to shocks

Bond credit rating agency, Moody’s Investors’ Service has lowered South’s Africa’s sovereign credit ranking below investment status, bringing it down from ‘Baa3’ to ‘Baa1’ as the rainbow nation battles the twin calamities of successive recessions and a twenty one-day covid-19-induced lockdown.

Giving the negative outlook on Friday, Moody’s said “the key driver behind the rating downgrade to Ba1 is the continuing deterioration in fiscal strength and structurally very weak growth, which Moody’s does not expect current policy settings to address effectively.”

A Ba1 rating is believed to be speculative and carries a considerable credit risk.

A grave implication of this slump is South Africa’s ejection from the World Government Bond Index (WGBI) just as CNBC Africa envisages that “those funds tracking this index as a benchmark will become forced sellers.”

Read also: Finance minister speaks on what it’ll take for covid-19 to make Nigeria fall into recession

It says the negative development could trigger sales as high as $8 billion.

“Unreliable electricity supply, persistent weak business confidence and investment as well as long-standing structural labour market rigidities continue to constrain South Africa’s economic growth. As a result, South Africa is entering a period of much lower global growth in an economically vulnerable position,” Moody said.

Earlier this month, Moody cut its 2020 economic outlook for South Africa from 0.7% to 0.4%, citing disruption demand and supply shocks triggered by the coronavirus pandemic.

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