Will Moody’s downgrade South Africa’s government issuer rating to B or below before 1 April 2016? (update)

The economic news out of South Africa is unremittingly bad: 25% unemployment, less than 1% expected GDP growth for 2016, public debt as a percentage of GDP nearing 50%, a 10% drop in the rand’s value since December, etc.[1]. The current South African Finance Minister, Pravin Gordhan, has gone so far as to describe his country as being in a “crisis”[2]. However, “Moody’s Investor Service said on Wednesday Finance Minister Pravin Gordhan’s planned tax increases in his 2016 Budget Speech were well targeted, given the weak economic backdrop”[3]. Clearly, Moody’s is not jumping for joy about the situation in South Africa: “South Africa’s budget aims to quickly consolidate spending by cutting a large public sector wage bill, but has not identified specific revenue measures to achieve smaller deficits, Moody’s said on Wednesday”[4], and it seems very hard to avoid the conclusion that Moody’s will downgrade South Africa at least one level. But a 4 level drop doesn’t seem to be in the cards, as far as I can see. 1% probability at best.

[1] http://www.weforum.org/agenda/2016/02/can-south-africa-avoid-another-credit-rating-downgrade

[2] http://www.bbc.com/news/business-35650701

[3] http://allafrica.com/stories/201602250881.html

[4] http://www.reuters.com/article/safrica-budget-moodys-idUSL8N163505

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