SABC News - Treasury prepares to meet Moody’s amidst possible ratings downgrade:Wednesday 9 March 2016

Treasury prepares to meet Moody’s amidst possible ratings downgrade

Wednesday 9 March 2016 19:00

Devan Murugan

Moody's announced that it will review South Africa's credit rating to decide whether it should be downgraded.(REUTERS)

Treasury has mapped out what it will highlight to Moody's when the ratings agency visits South Africa next week.

It follows an announcement by Moody's that it will review South Africa's credit rating to decide whether it should be downgraded.

Two ratings agencies - Fitch and S&P- rate South Africa one notch above investment grade. A downgrade by Moody's will bring all three in line.

Moody's is concerned about the country's growth prospects - which it puts at 0,5% this year. It says the drought has hurt growth by pushing up food costs and overall inflation. Low commodity prices and market volatility, domestically and international, it says, are also hurting growth prospects.

Lesiba Mothata, from Investment Solutions, say, “Within 24 months, the economy can grind to a halt and you have lower revenues from taxes – that is what they are hinting at. There has not been enough in the Budget to improve growth, and those reforms should be structural in nature. "

Next week Moody's are likely to assess the effectiveness of the government's plans to improve economic growth by addressing structural issues. Another like area of assessment is policy issues on labour relations and how far they go in curbing the wage bill and reducing strikes.

Whether or not the country can improve its debt position which is close to 50% of GDP in this fiscal year is also a possible issue Moody’s might look in to.

The African National Congress (ANC) believes the country has been convincing in its approach to remedy the economy.

ANC Deputy Secretary-General, Jessie Duarte, says, “It must be remembered that many of the criteria they are using - we were not party to developing. We do things for our own needs. But it would be very good if they rate us positively."

Treasury  has responded saying it will highlight to Moody's next week the measures adopted in the Budget to accelerate fiscal consolidation and the steps taken to reinforce stable industrial relations.

It will also point to measures it identified to strengthen State owned companies.

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