Home Business and Technology Moody’s drops SA’s credit rating to junk status

Moody’s drops SA’s credit rating to junk status

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Moody's

Moody’s has now joined the other two major ratings agencies, downgrading South Africa’s sovereign credit rating to junk status. The agency has downgraded the country one notch to BA-1 from BAA3 and maintained a negative outlook.

It said the main driver behind the downgrade is the continuing deterioration in fiscal strength and structurally very weak growth.

Moody’s said the rapid spread of the coronavirus outbreak will exacerbate South Africa’s economic and fiscal challenges and will complicate the emergence of effective policy responses.

The agency is the last of the big three agencies to downgrade the country to sub-investment grade, after S&P global and fitch moved there in 2017.

Having a lower credit rating typically increases a government’s cost of borrowing by raising the premium that investors demand to hold its debt.

The latest downgrade will see South Africa kicked out of the benchmark world government bond index of local-currency debt.

Analysts estimate this will trigger up to $11 billion of forced selling as a result.

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Source: EWN