Moody's downgrade strengthens the case for debate on the economy in Parliament

Moody's downgrade strengthens the case for debate on the economy in Parliament

S&P Global Ratings and Fitch Ratings have already cut their ratings for South Africa.

Much of the disruptions of the South African economy may have been triggered by the way the country's leadership handled corruption scandals on the back of reports that President Jacob Zuma and wealthy businessmen have been at the centre of influence-peddling claims.

Economist Kamilla Kaplan says, "The negative outlook typically signals that the next ratings move would be another downgrade and typically ratings agencies would keep us on negative for about 12 months".

"Over the medium-term, economic and fiscal strength will remain sensitive to investor confidence and hence uncertainty surrounding political developments, including prospects for structural reforms meant to raise potential growth and flexibility in fiscal expenditures".

Backroom rifts within the ANC have been thrust into the open this week after more than 100,000 emails leaked to local media allegedly showed improper dealings in lucrative government contracts by business friends of Zuma.

The independence and strength of key institutions such as the judiciary, the Reserve Bank and the National Treasury are a key support in Moody's assessment of South Africa's credit profile, through ensuring the continuity of a predictable, credit-supportive policy environment. Moody's has cited political issues and lower growth estimates as major reasons for downgrade. However, the negative outlook reflects the continued downside risks for growth and fiscal consolidation associated with the political outlook.

Unemployment in South Africa stands at 27 percent, and the country has struggled with sluggish growth for years.

Earlier this week, South Africa's statistics agency said the country entered a technical recession in the first quarter.

South Africa's long-term local-currency bond and deposit ceilings were also lowered to A2 from A1, and the long-term and short-term foreign-currency bond ceilings lowered to A3/P-2 from A2/P-1, respectively.

David Maynier, a lawmaker with the main opposition Democratic Alliance party, described the announcement as "more bad news, in a string of bad news, and is a clear vote of no confidence in Finance Minister Malusi Gigaba and President Jacob Zuma".

Treasury attempted to soothe rating agency fears, pledging that the "outcomes of the conferences of the African National Congress in June and December 2017 are not expected to translate to policy changes".

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