Reading Time: 2 minutes

Moodys Downgrade Sees Investment Pour Out of SA

At the end of March, as the country headed into a 21 day lockdown to help delay Covid-19 infections, Moody’s rating agency eventually pulled SA Sovereign Credit Rating from the equivalent of barely a good idea down to “junk” status.

‘They now rate the risk too high for certain types of investment schemes’

They now rate the risk too high for certain types of investment schemes. This has seen a massive outflow of investment that will continue as these funds are forced by their internal policies to rather move money elsewhere. This will have the knock-on effect of it costing SA more to finance the debt they already have and the debt they will soon try to take on.

Too Little Done To Retain Status

Moodys say they have seen too little movement on the planned reforms that may have seen the previous rating stay in place. This has been evidenced by how long it has taken to deal with entities like SAA and SA Express. Moodys have been warning that this negative rating change would come for many months with little successfully done to prevent it from coming.

The sudden Covid-19 Pandemic is also set to decimate the economy. The UN now estimates that half of the African continent could face job losses. They predict that developing countries will be the hardest hit.

Other rating agencies already downgraded their ratings to “junk” status years ago to below investment grade in the wake of the midnight cabinet shuffle by Former President Jacob Zuma in the midst of the Gupta state capture years.

Rand & JSE Take a Pounding

As soon as market trading began in the east, the Rand quickly plummeted to all-time lows above R18 for a Dollar. This was later somewhat offset by China’s central bank cutting their interest rates by 20 basis points which helped slow sell offs.

Back in 2016, in the midst of financial crisis, the Rand once dropped to R17.91 per Dollar setting the previous record which has now been smashed. It is now estimated that SA’s debt burden will reach 91% of the GDP in 2023.