Moody’s next review on South Africa’s credit rating, expected on Friday, will be the first real test of whether investors and ratings agencies are happy with policy direction under new President Cyril Ramaphosa.
Fitch and S&P Global downgraded South Africa to “junk” status last year after Ramaphosa’s predecessor Jacob Zuma inexplicably fired well-respected finance minister Pravin Gordhan, adding to growing doubts about the governing African National Congress (ANC) party’s commitment to sound economic policy.
Moody’s retained its Baa3 long-term issuer and senior unsecured bond rating but placed it on review for downgrade, citing “a series of recent developments which suggest that South Africa’s economic and fiscal challenges are more pronounced than Moody’s had previously assumed”.
Sentiment has since perked up, with the rand rallying to three-year highs against the U.S. dollar, after former businessman Ramaphosa was first elected to lead the ANC at a December conference, and then sworn in as the country’s president last month after Zuma, embroiled in allegations of corruption, was forced to step down.
Ramaphosa announced his own cabinet reshuffle, returning to the key finance portfolio, Gordhan’s predecessor Nhlanhla Nene, another market favourite who had also been abruptly fired by Zuma in late 2015.
Nene met with officials from Moody’s earlier this month, ahead of Friday’s review, and said afterwards he was confident the National Treasury had reassured the ratings agency on South Africa’s fiscal plans.
If Moody’s retain South Africa’s foreign and domestic currency debt at investment grade, this will be seen by the investment community as a thumbs up for Ramaphosa, said Tom Elliott, an international investment strategist at the deVere Group.
“But investors should appreciate it’s still early days in the post-Zuma era, and there will continue to be scepticism as to whether Ramaphosa can really deliver,” Elliott said.
“Investors want to see not only economic growth, but evidence that the ANC can clean itself of corruption.”
A couple of high profile corruption convictions among senior government officials and executives of state companies implicated in graft under Zuma’s stewardship would “send a positive message that the rule of law has returned,” Elliott added.
Zuma, who was president for nearly nine years from 2009 and had been scheduled to step down next year ahead of general elections, has denied having a corrupt relationship with a wealthy family accused of exerting undue influence on his government.