Rand falls after Mboweni says Moody’s rating ‘not looking good’

South Africa’s rand weakened as much as 1.2% against the dollar after Finance Minister Tito Mboweni said the fate of the country’s sole remaining investment-grade credit rating from Moody’s Investors Service was “not looking good.”

Read: Moody’s looking ‘very carefully’ at fiscal stance – finmin

Fitch: SA rating reflects Eskom debt risk

The currency pared its losses to be 0.8% weaker at 15.1290 per dollar as of 2:12 pm in Johannesburg. The rand slumped as much as 3.3% Wednesday after Mboweni presented his medium-term budget policy statement. Yields on 2026 government rand bonds climbed 15 basis points to 8.59% after soaring 23 basis points yesterday.

Moody’s is scheduled to assess South Africa’s rating on Friday. Mboweni presented a rapidly deteriorating outlook in his budget, with gross government debt seen surging to 80.9% of gross domestic product in the 2028 fiscal year unless urgent action is taken. Fitch Ratings Ltd. said in a statement Thursday that a clear path toward stabilising debt is still missing.

Read: ‘Mixed picture with some positive signs’

Enough is enough

“Moody’s said they will release their view tomorrow and were looking very carefully at our fiscal stance,” Mboweni told lawmakers on Thursday. “Let’s see what they say, but I really hope they keep the rating the same. But it is not looking good.” He added that “Fitch is really not impressed with us and said you guys didn’t go far enough.”

Moody’s has a stable outlook on the rating. In a Bloomberg survey done before the budget presentation, nine out of 17 economists forecast that the company will change this to negative before the end of the year, which means the next move on the credit rating may be a downgrade.

President Cyril Ramaphosa Thursday said that the economy is in a “dire situation” and the government was intent on turning it around.

“We are still on our feet,” he told lawmakers in Cape Town. “We will resolve these problems. That I assure you.”

South Africa’s benchmark stock index extended its gains after the comments, boosted by strength in so-called rand hedge companies that benefit from declines in the local currency. The index was 1.4% higher as of 2:25 pm, with international luxury group Richemont among the biggest contributors to the advance, up 2.6%.

“I expect Moody’s to look at three things: the debt metrics, is our growth story credible and what are we doing on the expenditure side,” Dondo Mogajane, director-general at the National Treasury, said in an interview in Cape Town. “It remains a challenge and concern if we are not doing anything about it. So that is important on the expenditure, compensation of employees, that we engage with leaders. But let’s see what Moody’s do tomorrow.”

Read: Sell assets now, says Treasury. Unions push back

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