South Africa Economists Warn of Possible Downgrade


Global Economy

Monday, December 18,2017

South African economists warn that rating agency Moody’s has no obligation to wait to downgrade the country, despite the agency being on record stating that it would wait for both the elective conference as well as the budget speech next year.

Moody’s has previously stated that it would be closely watching both the national elective conference as well as the budget speech which is set for February next year—with expectations of implemented fiscal discipline in the budget, IOL reported.

Despite this, economist Soria Hay says that the rating agency has a responsibility towards investors who buy their report and no obligation towards South Africa, despite the agency being “friendly and accommodative” to the country in the past.

Hay warns that the worst possible outcome would be no outcome, “if there is chaos and a candidate is not elected, then that would spook everyone—both domestic and international investors. From a market and economic perspective, current deputy president Cyril Ramaphosa is the preferred candidate,” Hay says.

“I think the financial markets look at Cyril as the candidate who would provide more certainty, the reason for that is that backers of Nkosazana Dlamini Zuma (Zuma’s ex-wife) included militant groups who want land, banks and the mines to be nationalized,” Hay says.

Members of South Africa’s ruling party, the African National Congress, are to decide the successor to controversial leader Jacob Zuma.

“I think it’s very likely that we’ll get downgraded if—one, there is no outcome and two, if Cyril doesn’t win.”

“The other thing that will definitely happen should we get downgraded is that the South African bond will fall out of the City Group World Government index because the said index cannot hold junk status instruments,” Hay warned.

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