Moody’s Sees One-Third Probability of South Africa Downgrade

JOHANNESBURG, Capital Markets in Africa: The probability that South Africa’s sovereign credit rating could be cut in November by Moody’s Investors Service is about a third, the company’s Vice President Zuzana Brixiova said.

“We expect the probability of a downgrade at less than 50 percent, its closer to around one third,” Brixiova told reporters in Johannesburg on Tuesday. The country’s growth path will be “very important,” she said.

South Africa is struggling to revitalize the economy and contain public debt in the face of warnings by ratings companies of possible downgrades. While Moody’s places Africa’s most-industrialized country at the second-lowest investment-grade level, Fitch Ratings Ltd. and S&P Global Ratings assess the debt at one level above junk. A decline to non-investment grade could lead to capital outflows at a time when the economy is expanding at the slowest pace since 2009.

Moody’s is seeking progress on government and business efforts to boost economic expansion and could downgrade the nation if debt climbs and if political uncertainty starts to impede growth, Senior Vice President Kristin Lindow said at an earlier conference in the city. Debt metrics will probably stabilize and even decline this year, she said. Economic growth is forecast at 0.2 percent this year and 1.1 percent in 2017, according to Moody’s.

Uncertainty about the fate of Finance Minister Pravin Gordhan, who is being investigated for setting up an allegedly illicit investigative unit when he ran the tax agency a decade ago, and divisions within the ruling African National Congress have weighed on the rand and bonds this year. Gordhan says the unit was approved and legally constituted, and opposition parties say PresidentJacob Zuma is using the charges to install a more pliant head of the Treasury.

Moody’s is “pretty confident” Gordhan will remain in his post, Lindow said. A switch in finance ministers will only be negative if it leads to changes in fiscal policy, Brixiova said.

The government and some business leaders are scheduled to meet with investors in the U.S. next month to help shore up confidence.

Moody’s will give the outcome of its review on Nov. 25, while S&P, which has a negative outlook on its rating for South Africa, is due to give its next assessment on Dec. 2. Fitch will visit South Africa in early December.

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