South Africa will come face-to-face with the risk of a R97.9 billion debt sellout this week, as it braces itself for two concurrent credit status rulings.
This judgement will decidedly determine the economic path of South Africa. With economists outlook, there is mixed feelings about the anticipated outcome of the credit status rulings.
According to a recent Bloomberg survey, 65% of respondents said that S&P Global Ratings will reduce its assessment on rand-denominated debt to the highest non-investment grade on Friday.
However, three quarters of economists were of the opinion that Moody’s Investors Service will plausibly leave it unchanged.
“The budget will provide the fiscal detail that was lacking in the 2017 medium-term budget policy statement, which is needed in assessing South Africa’s creditworthiness. The likelihood has increased for South Africa to lose its remaining investment-grade ratings”, said Annabel Bishop, the chief economist at Investec Bank.
If both companies were to cut, rand debt would fall out of measure. This includes Citigroup World Government Bond Index which will incite outflows of R80 billion to R100 billion, said Citigroup economist, Gina Schoeman.
In effect, this will cause a catastrophic event will would raise South Africa’s borrowing costs. This will see the country selling more debt to fill a widening budget gap.
Currently, S&P and Fitch Ratings Ltd. both rate South Africa’s foreign-currency debt at the highest non-investment grade. They lowered their assessments within a week of Zuma’s March 31 replacement of then Finance Minister Pravin Gordhan with Malusi Gigaba.
“Given the fraught political context in which South Africa finds itself, alongside the negative repercussions of downgrades in triggering ejection from key bond indices, we believe that the rating agencies will not rush to cement decisions to downgrade this month”, said Phoenix Kalen, director for emerging-markets strategy at Societe Generale SA in London.
Ten of the sixteen respondents in the Bloomberg survey however said that Moody’s will not lower its assessment.
Meanwhile, Finance Minister Malusi Gigaba on November 5 embarked on a drive to reassure international ratings agencies.
This attempt comes after S&P indicated that South Africa is headed for another downgrade.
The judgement of the credit status ratings is yet to be decided.
Gigaba reportedly met with both S&P and Moody’s to discuss the country’s economic affairs.
He also reassured everyone in his first Medium Term Budget Policy Statement (MTBPS) that he would drive inclusive growth and fiscal consolidation.
“In a constrained fiscal space, the government’s commitment to meet challenges in South Africa is demonstrated by interventions to grow township and rural economies, strengthen good governance at state-owned companies, as well as the additional significant allocation of funding for higher education”, the cabinet said.