Moody’s downgraded South Africa’s sovereign credit rating to Baa3, with a negative outlook, on Friday night.
A change in country rating is often followed by a change in the rating of individual borrowers because ratings of corporations are capped by the rating of the country in which they are domiciled.
“The primary driver of [yesterday’s] rating downgrades is the challenging operating environment in South Africa, characterised by a pronounced economic slowdown, and weakening institutional strength,” Moody’s said.
Insurers Old Mutual, MMI Group, Guardrisk and Standard Insurance were all downgraded one notch to Baa2 or Baa3 – the lowest investment-grade level.
“Recent political developments suggest a weakening of the country’s institutional strength, which casts doubt on the strength and sustainability of the recovery in growth,” said the agency.
Moody’s was probably referring to President Jacob Zuma’s shock purging of ministers critical of him in March, including respected Finance Minister Pravin Gordhan.
The purge prompted Fitch and S&P Global, the other big global credit ratings agencies, to downgrade South Africa’s sovereign debt to junk status.
It also led to outrage among the opposition and part of the ANC, with tens of thousands of citizens taking to the streets to demand the president’s resignation.
Moody’s currently has South African government debt rated at Baa3 – one notch above junk status – with a negative outlook.
Moody’s also announced that it had downgraded the creditworthiness of local authorities by one notch.
“Although [the cities] have comparatively rich economic bases, sound financials and good governance practices, Moody’s expects that reduced growth prospects in the medium term will put pressure on their overall financial performances,” the agency said.
Moody’s announcements will pile pressure on Finance Minister Malusi Gigaba, who is facing criticism after the economy entered a recession – its first since 2009 – with an unexpected 0.7% contraction in the first quarter.
Gigaba has been dogged by mounting corruption accusations.