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Moody’s cuts South Africa’s credit rating to junk

Rating agency Moody’s has cut South Africa’s sovereign credit rating to subinvestment grade, meaning the country now has a junk rating from all three major international rating agencies.

The downgrade comes on the same day that South Africa entered a 21-day national lockdown in an effort to slow the spread of the coronavirus pandemic.

In a statement on Friday evening, Moody’s cited the deterioration in SA’s fiscal strength and “structurally very weak growth” for its decision to lower the country’s rating to Ba1 from Baa3. The outlook remains negative.

Before Friday evening, Moody’s was the sole major rating agency to not have downgraded SA to junk. Rival agencies Fitch and S&P both downgraded SA to junk in 2017.

The announcement on Friday evening was not unexpected. It comes after Moody’s downgraded its outlook for SA’s credit rating to negative in November 2019, warning of SA’s growing debt-to-GDP ratio.

Due to the downgrade, South Africa’s government bonds will be excluded from the FTSE World Government Bond Index.

Coronavirus to make economic challenges worse 

Moody’s said the “unprecedented deterioration” in the global economic outlook caused by the rapid spread of the coronavirus outbreak will exacerbate the the country’s economic and fiscal challenges, and “complicate the emergence of effective policy responses”.

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Copyright 2019 John B. Wells