This latest move means that Moody's, Standard & Poor's and Fitch all currently have a credit rating of BBB+ on South Africa with a negative rating outlook, meaning the next move would be a downgrade to BBB.
Brown notes that an economy such as South Africa, which remains reliant on transformation and development, needs to provide investors with regulatory certainty and administrative efficiency. "This in turn requires laws and policies that are clear, definite and consistently applied by the current administration and its successor, with any policy changes a result of the shifting economic landscape, so as to maintain stable debt ratios."
She says continuing strikes and wage demands are having a hugely detrimental effect on South Africa's image around the world. "Perhaps more importantly, they come at an already difficult time when international ratings agencies had already expressed their concern about populist pressure and uncertainty around policy direction, which could undermine commitment to low budget deficits and debt targets.'
"Whilst some market movement and rand weakness is expected, I don't believe it will be significant because the move aligns Moody's rating with the other two, so it's largely driven by sentiment at this stage. However, if the rating moves from BBB+ the impact will be far more significant," she says.
In its report, Moody's said the current fractious domestic environment is not conducive to reforms being implemented. In addition, while government is working towards a stabilisation of the debt-to-GDP ratio through increased spending discipline, the agency noted that these plans were rendered more challenging given recent events.
