Moody’s expected to revise SA’s outlook from negative to stable

Moody's Investors Service, one of the top credit rating agencies globally, is expected to revise South Africa's outlook from negative to stable in an upcoming ratings review. This move comes after a long period of evaluation, with no significant changes in South Africa's credit rating since November 2020. Jones Gondo, Senior Credit Strategist at Nedbank, believes that the time is ripe for Moody's to make this adjustment, considering the positive trajectory of South Africa's economy. The long wait for Moody's decision has been a topic of discussion, especially when compared to other rating agencies like Fitch, which have made recent upgrades. Gondo attributes Moody's delay to their cautious approach post-COVID-19. Initially, Moody's had a negative baseline outlook for South Africa, closely monitoring the fiscal trajectory to assess if the positive trends were sustainable. The recent data points indicating a consolidation phase in South Africa's financial indicators have prompted Moody's to reconsider its baseline assumptions. Gondo highlights two key factors that are likely to influence Moody's decision to change South Africa's outlook. Firstly, the pace of debt accumulation, which was a major concern for Moody's, has shown signs of deceleration. South Africa's debt-to-GDP ratio is projected to decrease from the previously worrying 90 percent to a more manageable 75 to 80 percent level by 2023-24. This reduction in debt growth is expected to lower the country's interest payment costs over time. Secondly, while challenges such as global economic uncertainties and potential growth slowdowns remain, South Africa's focus on expenditure consolidation and structural reforms in critical sectors like energy and transportation is seen as a positive step. Looking ahead, Gondo believes that a stable outlook from Moody's is the most likely scenario for now, with a potential upgrade in credit ratings possibly deferred to the second half of 2023. The upcoming municipal elections and future wage negotiations could impact South Africa's fiscal discipline, requiring prudent management to maintain stability. Gondo emphasizes the importance of effective structural reforms in key sectors to drive sustainable growth and mitigate any risks of slippages in debt or expenditure management. In conclusion, Moody's revision of South Africa's outlook from negative to stable signifies a positive shift in market sentiment towards the country's economic prospects. While the road to a credit ratings upgrade may still be a gradual process, the foundation for improved financial health and stability is being laid through prudent fiscal policies and structural reforms.