Moody's warns on possible S.A downgrade

Moody's Investors Service has raised concerns over the possible downgrade of South Africa's sovereign rating, with the country's political instability cited as a significant threat. The warning comes as South Africa's sovereign rating is set to be released on the 25th of November, with Moody's 11th Annual South African Credit Risk Conference highlighting the impact of political divisions on the country's economic outlook. The conference, held at Santons Hilton Hotel, brought together key figures who could shape the fate of South Africa's economy and influence business activities across the continent. The implications of a rating downgrade for South Africa are significant, as it could affect the country's access to international capital markets and drive up borrowing costs. Moody's emphasized that the failure to implement structural reforms due to political turmoil could lead to a negative rating adjustment. The ongoing political noise, particularly surrounding investigations by the hawks, has raised concerns about the government's commitment to necessary reforms. If reform commitments do not materialize, Moody's warned that it could reflect poorly in the country's rating. Additionally, the government's continuous bailouts to state-owned enterprises have contributed to increased contingent liabilities, with the issue of implicit subsidies and postponed restructuring posing further challenges. The conference attendees expressed uncertainty about the possibility of a downgrade, with some predicting a less than 50% chance. Despite the looming downgrade risk, the rand strengthened to 13 rand 86 cents to the US dollar. However, Moody's asserted that even if a downgrade were to occur, South Africa's rating is currently two notches above non-investment grade, providing a buffer against a significant drop in rating status. The question now remains whether South Africa's political issues will be resolved before the sovereign rating release on the 25th of November. The recent unrest on university campuses in Johannesburg has showcased the ongoing challenges faced by the country, raising doubts about political stability moving forward. As the world eagerly awaits the sovereign rating outcome, all eyes are on South Africa to see how it navigates through this challenging period. For CNBC Africa, this is Aviwe Mtila reporting from Johannesburg.