Moody’s leaves SA’s investment rating unchanged

Government has thanked all citizens who continue to support a common goal of promoting social transformation and more inclusive economic growth.

Moody’s Investors Service (Moody’s) announced that is has left South Africa’s government bond long and short term ratings of ‘Baa2/P-2’ unchanged with a negative outlook, two notches above sub-investment grade.

The agency decided not to have a formal review process given their recent affirmation of the sovereign rating in May 2016.

National Treasury said on Saturday, following the announcement, that government had noted the decision and would like to thank those who took part in the review process.

“The South African economy is showing resilience, supported by strong and independent institutions.”

According to National Treasury, the country’s credit rating strengths include the Constitution and the Public Finance Management Act (1999) which entrench a centralised, accountable framework for fiscal management and South Africa’s inflation targeting policy, implemented by the South African Reserve Bank since February 2000 which has helped to anchor inflation expectations and reduce interest rate volatility.

The floating exchange rate regime continues to provide the economy with buffers against external shocks, while at the same time limiting the risk of excessive domestic exposure to foreign currency liabilities.

Government has low foreign currency-denominated debt with long maturities – accounting for around 10% of total government debt and only 4% of Gross Domestic Product (GDP) – which is much lower than most of its peers. The domestic bond market is deep and liquid, reducing debt-refinancing risks. Loans and guarantees by subnational government are limited and subject to national legislation.

Provinces are almost entirely funded through transfers from national government. Borrowing by local governments is capped and limited to major metros with significant revenue-raising powers.

Also, the fiscal framework is underpinned by credible macro-fiscal forecasts, the South African Revenue Service (SARS) has consistently improved the efficiency of the tax system and has generally exceeded revenue collection targets, and despite new spending pressures, government has maintained the expenditure ceiling.

National Treasury’s long-term model suggests that existing core social spending priorities, such as education, health and social grants, are sustainable over the coming decades. In addition, the Government Employee Pension Fund is well funded.

South African exports are increasing, particularly to Asia and Europe. Increasing foreign investments by the country’s companies are resulting in higher dividends from their offshore investments. Therefore, the deficit on the current account of the balance of payments improved from 5.3% of GDP in the first quarter of 2016 to 3.1% of GDP in the second quarter of 2016.

The banking system is strong and well-regulated with capital adequacy ratios well above the minimum regulatory capital requirement of 15%.

South Africa improved seven places to reach 49th in the Global Competitiveness Report for 2015/16, reversing a four-year downward trend.

Source: South African Government News Agency.

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