Moody's places S. Africa on review for downgrade

International rating agency Moody's Investors Service (Moody's) said on Wednesday it has placed the Baa2 bond and issuer ratings of the government of South Africa on review for downgrade. Also placed on review for downgrade were South Africa's (P) Baa2/(P)P-2 shelf and MTN program ratings, the agency said in a statement.

The decision to place the ratings on review was prompted by the continuing rise in risks to the country's medium-term economic prospects and to its fiscal strength, notwithstanding the tighter fiscal stance undertaken in the 2016/17 budget, the statement said.

It said the review will allow Moody's to assess to what extent government policy can stabilize the economy and restore fiscal strength in the face of heightened domestic and international market volatility. The first driver for the review is to allow Moody's to assess to the likelihood that the decline in South Africa's economic strength will be reversed over the medium term.

The second driver of the review is to allow Moody's to assess whether government policy is likely to lead to a reversal in the continuing erosion of the government's balance sheet, said the agency.

Moody's cited South Africa's weak economic performance as a risk factor when assigning a negative outlook to the rating in December 2015. South Africa's economic growth dropped to 1.3 percent last year, the slowest pace since the 2009 global financial crisis, the agency noted Moody's expects growth to decline still further, to 0.5 percent in 2016, as a consequence of the intensification of this year's drought, low commodity prices as well as the volatility in global and domestic financial markets since December.

The agency will visit South Africa for a downgrade review from March 16-18, which will primarily serve to either affirm the current ratings or downgrade, the National Treasury confirmed Wednesday. During the visit, the agency will assess the views of various stakeholders in government, civil society, labour as well as the private sector on a number of areas.