‘Worst is behind us’: Moody’s expects slow recovery for SA

Moody’s Investors Services expects SA's economic growth to pick up slowly, boosting the chances the country will escape a credit rating downgrade in the near future.

“We think things look fairly stable and see a small chance of a ratings move – either up or down – in the next eight months,” Lucie Villa, a senior analyst with the firm’s sovereign risk group, said at a presentation in Johannesburg on Thursday.

“We expect a broad-based recovery, and the worst is probably behind us,” Villa stated, and expressed the opinion that despite two quarters of negative economic growth this year, growth will come in positive for 2018, but below 1%.

Moody’s expects the weak business confidence to prevail until the elections next year. 

Two aspects support this view. The first is that Moody’s expects global growth to remain buoyant, and the country is very integrated with the global economy, which means that while domestic economic activity will remain tepid, the global economy will be supportive.

But there is risk. “There was pressure on the fiscus before the economic recession, and there will be even more pressure now,” said Villa. Moody’s expects the budget deficit to reach about 4% this year, higher than budgeted, but lower than last year.

Despite this, the firm expects the governments’ debt burden, as measured by debt-to-GDP to remain “broadly stable” at 55%.  “The country has a good track record of maintaining fiscal deficits,” Villa said.

Moody’s cites two technical reasons that support its view that the government can keep its debt in check.

Firstly, government debt maturity has a long profile — meaning the current debt matures over long periods of time. This will prevent the current high borrowing costs translating into longer-term financing costs if the country were to have to refinance large chunks of its debt in the near term.

The second is that most of the country’s debt is rand-denominated, which means interest repayments are largely insulated from volatility in exchange rates.