Could the Moody’s Downgrade Finally Arrive?
At the end of last month rating agency, Fitch who have had SA’s long term foreign currency issuer default rating at ‘stable’ changed this to a “negative” outlook.
Fitch downgraded SA to “junk” status over 2 years ago but have thought that things were pretty stable, even though “junk” since then. However, in the last few weeks it seems that Fitch see the giant issue surrounding the bailout of Eskom as well as the tedious slow movement to implement needed changes to turn the economy around as boding bad things for SA’s economic future and Government debt. This moved them to downgrade their outlook again this year. This means they think things are going to get worse.
Will Moody’s Now Follow Suite?
Moody’s is often a more optimistic rating agency and sometimes hesitates to drop ratings quite as fast as S&P or Fitch. For a long time Moody’s has left SA sitting just above “junk” status while allowing elections and the removal of the Guptas and state capture graft to take effect. Increasingly however local economists and business analysts are predicting a downgrade from Moody’s. Unemployment figures have grown to nearly 30% and with political infighting slowing down required action, it seems more likely than ever that Moody’s too will drop their rating and this will begin a forced exodus of certain kinds of foreign investment.
This has been a pattern in several other third world countries such as Brazil, Egypt and Tunisia. First S&P then Fitch drop their ratings in the face of local economic collapse and then eventually Moody’s are also forced to do the same (if the situation didn’t dramatically improve). In those countries, a common next step was an IMF bailout with forced austerity conditions.