Moody's downgrades SA

It keeps South Africa's credit rating at investment grade, but just above junk status and retaining a 'negative outlook'.

This rating action concludes Moody’s decision to place the economy under review for a further possible downgrade.

According to Moody's, the downgrade was driven by the weakening of South Africa's institutional strength, reduced growth prospects reflecting policy uncertainty and slower progress with structural reforms, and the continued erosion of fiscal strength due to rising public debt and contingent liabilities.

Treasury says while the ratings remain on investment grade levels, the negative outlook indicates that the risk of further downgrades is still there. 

"Government calls on all South Africans, including the private sector and trade unions to work even harder together to address these concerns," says Treasury.

According to Treasury, the urgent priority is reigniting confidence as well as reclaiming and maintaining the investment grade ratings. 

"The Minister of Finance will ensure that the joint work of government, business, labour and the civil society continues at a faster pace," says Treasury.

"The commitment is on improving investor and consumer confidence through fast-tracking the implementation of the structural reforms on economic growth."

Meanwhile, economist Raymond Parsons says a positive is Moody's decision to leave SA in the important global bond index, which has significant implications for borrowing costs.

"This grants SA a breathing space and gives scope for remedial policies and actions. Yet the continued negative outlook categorization and Moody's critical but balanced narrative means that their decision should not be viewed as a reprieve, but rather as a warning for SA to get its house in order," says Parsons.