On 27 March 2020 Moody’s Investor Services announced that they were downgrading South Africa’s sovereign credit rating.
This implies the following:
This announcement has been anticipated for many months now, with most of the news already priced into the markets.
There will no doubt be some knee-jerk reactions in certain parts of the market and to the rand, but we are confident that most of them would have been priced in already. South Africa is not the first, nor will it be the last country to be downgraded, and in time we hope to get back to investment grade status.
Government must speed up reforms and stimulate economic growth, but we must first curb the spread of Covid-19.
The key concern is that the downgrade places the government and Treasury under added pressure to allocate its spending and annual budget with its constrained budget. The economy is fragile already and government’s ability to put stimulus packages together will be made more difficult. It also cannot raise the tax burden on individuals, who are already paying significant levels of personal income tax. It is now time for government to speed up key economic reforms and to create the best possible environment to stimulate economic growth. But first, it has the key task of tackling the spread of Covid-19 and protecting the health of its citizens.
Read the full update and what this means for the cost of government, business and consumer debt, South African bonds, and cost of living increases (inflation).
Read our latest investment update for more information on how our portfolios are positioned.
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