Do we care what Moody's thinks of South Africa's credit rating and what they think about it in the future? Should we care? I think the short answer is yes, we should definitely pay attention. The release, the free one anyhow you can get if you create a Moody's account (free, free), is available at the following link -> Moody's changes outlook on South Africa's A3 government ratings to negative from stable. If you do not have the time (I suspect that you do not) then perhaps you should read these few choice lines that I extracted from the report:
"The main drivers for the negative outlook include:
1. The growing risk that the political commitment to low budget deficits and the ability to keep within current debt targets could be undermined by popular pressures and rising internal strains within the African National Congress (ANC) party, and between the ANC and its partners in the Tripartite Alliance (the Congress of South Africa Trade Unions (Cosatu) and the Communist Party).
2. Expectations that growth will be somewhat slower than previously expected and limited to roughly 3%-3.5% over the medium term, which is insufficient to prevent already high unemployment rates from increasing further, thereby exacerbating social tensions.
3. The continued negative impact on private investment deriving from calls for interventionist actions aimed at "quick fixes" for black economic opportunities."
OK, so these are probably things that we all knew already, and had been talking about already. For a long time. So why does Treasury say that Moody's got this wrong? Isn't perception sometimes blended with reality? Here is the Treasury response ->
Moody's revises South Africa's A3 rating outlook to negative from stable. Check out two key lines for me:
"We disagree with the assessment of political risk in South Africa. We note that the decision to revise the outlook comes after a recent clear fiscal policy statement of government, the Medium Term Budget Policy Statement tabled in October. The MTBPS is a political decision on the prospects in our economy and the fiscal policy choices that government has made with explicit support of the ruling party, the African National Congress."
Whatever (and whichever) way you look at this, reactive and or otherwise,
this is what Moody's thinks. And for many a bond investor, they still rely on the ratings agencies when making decisions. So pay attention. At all times. Take what they (Moody's) say at face value and encourage the debate around these perceptions. Don't be ostrich like in the approach. Good, glad to have got that off my chest. So, clearly Moody's in the eyes of Treasury does not understand the policy choices made, or interprets them negatively. That is their choice, they have to live with that from here. I guess the line at the bottom is open ended too:
"The South African government will continue to prioritise higher economic growth and job creation at the core of its economic policy....." Question, how has that worked so far? Please can I have a non reactive answer.