South African ruling party welcomes Moody's rating confirmation

The ruling African National Congress (ANC) on Saturday welcomed rating agency Moody's confirmation on South Africa's sovereign rating.

The ANC commends the efficacy of the societal compact championed by President Jacob Zuma and the Minister of Finance Pravin Gordhan which brought together social partners in government, business, labour and civil society to yield the most welcome results in stabilising the labour environment and ensuring security of electricity supply, the ANC said.

The party issued the statement one day after Moody's confirmed South Africa's Baa2 long-term government bond and issuer ratings as well as its (P)Baa2/(P)P-2 shelf and MTN program ratings, and assigned a negative outlook.

The negative outlook speaks to the implementation risks associated with the structural and legislative reforms that the government, business and labor recently agreed in order to restore confidence and encourage private sector investment, upon which Moody's expectations for growth and fiscal consolidation in coming years -- and hence the Baa2 rating -- rely.

Moody's refrained from downgrading South Africa's sovereign rating to sub-investment grade.

The rating actions conclude a review for downgrade that commenced on March 8, 2016, Moody's said.

"The confirmation of South Africa's ratings reflects Moody's view that the country is likely approaching a turning point after several years of falling growth; that the 2016/17 budget and medium term fiscal plan will likely stabilize and eventually reduce the general government debt metrics; and that recent political developments, while disruptive, testify to the underlying strength of South Africa's institutions," the agency said.

The South African government has been trying hard to avoid a further downgrade which would have substantial implications for investment.

After downgrading by Fitch, Standard & Poor's and Moody's late last year, South Africa's credit rating stands at BBB- and Baa3 (a rating equivalent), respectively. That means the country is at very real risk of becoming a junk country.

"While we are not oblivious to remain challenges and existing concerns, the outcome of the review will go a long way to restoring investor confidence and attracting continued investment in our economy," the ANC said in its Saturday statement.

The party said it's confident that the South African government will continue with its program of aggressive fiscal consolidation while maintaining the delicate and very necessary balance between prioritizing radical socio-economic transformation, meeting basic needs and fiscal sustainability.