South Africa risks Moody's downgrade over budget, strikes: Citi

JOHANNESBURG (Reuters) - South Africa faces the threat of another ratings downgrade, most probably from Moody's, as its struggles with fiscal deficits and strikes that have hit production in key industrial sectors, banking group Citi said on Thursday.

Moody's, Standard and Poor's and Fitch have all downgraded the rating of Africa's biggest economy over the past year, largely prompted by often violent strikes in the mining and manufacturing sectors which contribute heavily to GDP.

"Because Moody's is still sitting one notch above the others and we are on negative watch, it is likely we get a ratings downgrade from them," Citi analyst Gina Schoeman told a media briefing.

"The 'when' depends on what happens with the budget, either the October one or the February one."

In his medium-term budget next week, Finance Minister Pravin Gordhan is likely to announce wider budget deficits for the current financial year and the next two as the economy struggles to generate sufficient revenue to meet expenditure.

In a credit opinion this week, Moody's said South Africa's credit challenges included regaining control over public finances, weakening labour productivity and strike-related business losses exacerbated by declining terms of trade.

"The ratings could be downgraded should the government's debt and contingent liabilities rise much further, particularly if the deterioration occurs due to a pro-cyclical fiscal stance and/or heightened socio-political unrest," it said.

With Fitch and Standard and Poor's expected to visit the country later this year, other analysts see a risk of South Africa taking another step towards junk status as social inequalities fan tensions ahead of elections next year.

"The ratings agencies ... are concerned about all of the slow-moving things like the socio-economic inequalities and what that could do to long-running political stability and social stability," said Absa Capital analyst Peter Worthington.

"I think that there is risk that we could see some rating downgrades come through after the medium term budget. It's not our base call, but I don't think it can be ruled out."

Source: http://news.yahoo.com/south-africa-risks-moodys-downgrade-over-budget-strikes-071625561--finance.html
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