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Government comments on Moodys ‘just above junk’ rating

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South Africa’s credit-rating outlook was cut to negative by Moody’s Investors Service, which said the country faces a prolonged period of slow growth and increasing political pressures.

Moody’s lowered the outlook from stable and maintained the country’s credit grade at Baa2, the second-lowest investment grade.

Last week President Jacob Zuma shocked global investors and raised concern over the credibility of his economic policies by replacing Nene with a little-known lawmaker, David van Rooyen, on 9 December and then replacing Van Rooyen with Pravin Gordhan, who served as finance minister for five years from 2009, four days later.

Van Rooyen’s appointment sent the rand to a record low, while bond yields jumped to a seven-year high. The currency has tumbled 23 percent in 2015 against the dollar as raw-material prices plunged, and the country faces the prospect of a USA interest-rate increase on Wednesday that is expected to accelerate capital outflows from developing nations. The rand was 0.6 percent weaker at 15.02 per dollar this morning.

Government has noted investors service – Moody’s – decision to revise South Africa’s outlook rating to negative.

National Treasury said Moody’s indicated that the decision to change the outlook to negative from stable was based on increased probability that growth will remain low for a prolonged period of time due to the structural challenges facing the mining industry and other sectors of the economy.

The other reason cited by the ratings agency was the rising risk of fiscal slippages in the face of both slower growth and increasing political pressures.

“Moody’s affirmed South Africa’s government bond ratings (foreign and local) at ‘Baa2’ respectively citing the country’s track record of sound macroeconomic policies,” the department said.

Moody’s decision must be seen in the context of weak global growth prospects, a challenging environment for emerging markets and heightened volatility in financial markets, the department said.

“Moody’s decision to affirm the rating attests to South Africa’s solid history of sound macro-economic policy management, prudent fiscal policy and strong institutions.

“This approach to policy has enhanced South Africa’s credibility and will therefore remain government’s focus, the department said.

The reappointment of Minister Pravin Gordhan as the Minister of Finance will ensure policy continuity.

“The Minister has affirmed that gvernment will stay the course of sound fiscal management and focus on fiscal consolidation and debt stabilisation in the medium term.

“He assured that any extra expenditure would only be accommodated if extra revenue is raised and any revenue raising opportunity would be carefully considered so as to ensure that it does not damage growth or affect the poor negatively,” the department said.

The department has committed to addressing Moody’s concerns about a rising risk of fiscal slippage.

“Government is aware that the country’s economic growth performance needs to be improved and thus made the resolution of the energy challenge an immediate priority.

“Focus is on implementing the National Development Plan, in particular growth-inducing initiatives that include: investing in economic infrastructure through public private partnerships expanding the independent power producer programme encouraging affordable, reliable and accessible broadband access,” National Treasury said.

Government is also fast-tracking economic reforms aimed at alleviating the most binding constraints to growth and to build a more competitive economy. The implementation of these reforms will ensure that challenges of poverty, inequality and unemployment are addressed effectively. – SAnews.gov.za

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Alan Straton

Chief Cook, Bottle Washer and Broom Mechanic at MyPE
Passionate about Port Elizabeth and definitely NOT packing for Perth. Alan's ethos is epitomised in the words of Nelson Mandela; "I have fought against white domination and I have fought against black domination. I have cherished the idea of a democratic and free society. If need be, it is an ideal for which I am prepared to die." See more articles by Alan.