Moody’s Anticipate Bad Things
International Rating Agency Moody’s are currently the only rating agency that says people should still look to invest in SA* and have for a long time held off on agreeing with other rating agencies who are predicting total economic ruin.
While other rating agencies have for a while now warned off investors from SA and Government’s ability to repay debts, Moodys has hung on for a long time saying that things might turn around. If Moodys do downgrade their rating then many investment firms will be forced to move investments out of SA. This is because it would mean that SA will not be able to be part of global bond indices like the FTSE WGBI. This will end up costing the economy a massive amount to the tune of around R225 Billion. It will also mean that Government is going to have to pay a lot more for the debt they already have which is now around 70% of the GDP.
A Negative Outlook
Now in the wake of the recent Mini Budget speech Moodys has given the first indication that they will soon be pulling the ripcord and warning investors to steer clear by adjusting their SA Baa3 outlook to ‘Negative‘. This is traditionally the step that comes just before a downgrading to what is called a ‘sub-investment’ rating.
Moodys say that they doubt that politicians will actually be able to follow through with the steps required to turn the economy around and improve things. This is known as ‘political will’. They doubt that Government has the political will or clout to get things done. They see the public, unions, forums and other parties within government resisting the required changes and the process therefore failing.
Many politicians, on the other hand, are saying that this gives everyone a small amount of time to show that they really can turn things around. They echo the message from the World Cup Springbok team who say that by working together it might just be possible. The media are now saying that if SA was just a normal household they would seriously need to go for debt counselling to turn things around.
*OK, it is a little more complicated than that but… let’s keep things simple.