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Moody’s leaves South Africa hanging – here’s what to expect next

Ratings agency Moody’s has left the South African public hanging, with the group not publishing any ratings review, research report or note on the country’s credit status.

Moody’s was expected to deliver some form of report on Friday, but has instead chosen to keep its views private and skip any action.

The ratings firm is the last of the big three ratings agencies to have South Africa above full junk status, and many were anticipating some sort of opinion to follow weeks of load shedding, a cut in GDP growth forecast, and the most recent MPC decision to hold rates.

However, the firm has left the South African public “with a dagger hanging over the economy”, according to Intellidex analyst Peter Attard Montalto, who says that the South African rating stays at Baa3 neutral for now.

“It means that another update can come at any time,” he said, adding that attention now moves to post-elections.

“An affirmation (on Friday) would have closed off a ‘normal’ (ie non-shock) reassessment after the elections, but the market’s attention is already now focusing in on a possible post-election reassessment,” he said.

Attard Montalto said that this points to risk aversion within Moody’s at taking any kind of long term, reasoned view of where the economy and credit risk is going, a view of continual mean reversion on things like load shedding (not seeing its impact on long term growth) and not being able to pass critical judgement over reform promises or the Eskom plan.

It may also be that the group was shown a plan by government that was good enough to delay any action, the analyst said; however he noted that the longer the agency remains behind the curve, the less use they are to investors to make decisions.

What happens next?

The next ratings calendar date will be on 1st November after the MTBPS at the end of October, which offers a tight window for a trip and committee, Attard Montalto said.

“The possibility of a post-elections committee and assessment is high…We still believe that with a deficit that will not consolidate below 4% GDP, will not reach primary balance, and with growth not above 2%, a downgrade is inevitable.”

“It will simply happen far too late to be of any use to any investor,” he said.

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