South Africa faces Moody’s Rating Downgrade

South Africa faces Moody’s Rating Downgrade

South Africa faced a major setback as Moody’s Investor Services lowered the ratings for the country to the lowest investment grade. Moody’s has also reduced foreign and local-currency ratings for South Africa to Baa3. Moody’s has cited political issues and lower growth estimates as major reasons for downgrade. The report kept the outlook as negative.

South Africa is also facing political issues after President Jacob Zuma made major reshuffle to cabinet in April. Finance Minister Pravin Gordhan was removed from his duties and the event led to demonstrations on streets. The move also led to decline in South African currency. In a report released by statistics office on June 6, South African economy went into recessions in first quarter of 2017.

African National Congress leaders are planning to elect a new leader in December. President Zuma’s second term as ANC president will end in December. ANC aims to win 2019 elections and many leaders are looking at leadership change. With Zuma continuing as ZNC leader, many politicians fear a defeat for ANC in 2019 elections. S&P Global Ratings and Fitch Ratings have already cut their ratings for South Africa.

“The risks to growth and fiscal strength arising from the political outlook are tilted to the downside,” Moody’s report informed. “It is unlikely that a political consensus will emerge, which supports investment in the economy and reinvigorates the reform effort sufficiently quickly to reverse the expected negative impact on growth and on the government’s balance sheet.”

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