South Africa suffers another credit rating downgrade

Striking South African miners Image copyright Getty Images
Image caption Strikes at the platinum mines earlier this year have hampered the economy

The ratings agency Moody's has downgraded South Africa's sovereign debt rating.

The move comes after similar downgrades from Fitch and Standard and Poor's.

The South African economy has been struggling of late, amid industrial action on the platinum mines earlier this year and recent electricity blackouts.

South Africa's economy narrowly avoided recession in the first half of the year.

Moody's downgraded South Africa one notch to Baa2, just two notches above "junk status".

While South Africa retains an investment grade, Moody's said its decision was based on "poor medium-term growth prospects due to structural weaknesses, including ongoing energy shortages as well as rising interest rates".

Electricity blackouts

Earlier this week, the state-run electricity generator, Eskom, announced the possibility of rolling blackouts, after a coal silo collapsed at a power station in the east of the country.

Last month, South Africa's finance minister, Nhlanhla Nene, slashed this year's growth forecast for the economy to 1.4%, down from a previously forecast figure of 2.7%.

Image copyright Getty Images
Image caption South Africa's economy narrowly avoided recession this year

The slow growth has meant that the amount of tax the South African government has been able to raise fell below expectations, which pushed the budget deficit to 4.1% of GDP.

The country is also struggling with stubbornly high unemployment at around 25%.

Nonetheless, Moody's also changed its outlook from negative to stable, indicating that another ratings downgrade is unlikely any time soon.

Soaring debt

It said that the government has provided a commitment to rein in its debt.

Reacting to the Moody's downgrade the South African Treasury said: "Government is committed to narrowing the budget deficit, stabilising debt and rebuilding the fiscal space that enabled South Africa to escape the worst effects of the global economic crisis."

South Africa is the continent's second largest, but most developed, economy and is much more exposed to the global financial system than its African counterparts.

Part of the slowdown in South Africa's economy is being blamed global conditions and its reliance on external capital.

Most analysts were unsurprised by the move by Moody's, given that both Standard And Poor's and Fitch had cut their ratings earlier in the year.

"Moody's has for some time now both stuck out versus the other agencies and been highlighting the weak structural position of the sovereign," said Peter Attard Montalto of Nomura.

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