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Moody’s gives us breathing space

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Moody’s is the only one of the big three international rating agencies not to have downgraded our sovereign credit rating to sub-investment - or junk - status

MOODYS says the government needs to improve the management of SOEs. Picture: Reuters

South Africa is starved of good news, so when something positive happens it calls for celebration. This joy was delivered by ratings agency Moody’s on Saturday when, against expectations, it again skipped issuing a much-awaited assessment of the country’s sovereign credit rating.

That means that our credit rating remains unchanged at Baac3, with a stable outlook – the last rung of an investment grade.

South Africa has been teetering on the edge of junk status rating for a while. Moody’s is the only one of the big three international rating agencies not to have downgraded our sovereign credit rating to sub-investment – or junk – status. Fitch Ratings and S&P Global lowered our credit rating to junk in April 2017.

We can breathe easy – at least until the next Moody’s credit announcement on November 1.

The gods have smiled on us. If Moody’s had declared our rating junk, the country would have been thrown out of the Citigroup’s World Government Bond Index , which contains only bonds that are investment grade, forcing asset managers to dump billions of rands’ worth of South African bonds.

This would have spelled bad news to President Cyril Ramaphosa’s ambitions to raise $100 billion in new investment and jump-start the sluggish economic growth rate.

Massive outflows of money from the country would have been dreadful news for the economy and a junk rating would have made it difficult for the government to borrow money on international markets to keep the country afloat. It would have had to pay billions more in interest, at the cost of investments in projects such as schools, hospitals, and other services.

Imports such as oil, machinery and electronics would become more expensive. Inflation, comfortably within the target range of 4%-6%, would have flown out the window. The credit ratings of Standard Bank, Absa, Nedbank and FirstRand, which are all tied up to the country’s sovereign rating, could have also been imperilled.

They would have to offer higher interest rates when they borrow money, and passing this on to their clients.

South Africa has been given breathing space.

Now is the time to take hard decisions about structural changes needed to create an environment of economic growth, starting with entities such as Eskom.

November 1 is just around the corner.