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S. African gov't urged to avoid "further downgrade"

Xinhua, March 9, 2016 Adjust font size:

The South African government should do what it takes to avoid a further downgrade by rating agency, Moody's Investors Service, which has placed the country's investment rating on a "review for downgrade", the opposition Democratic Alliance (DA) said on Wednesday.

"A ratings downgrade to junk status will raise the cost of borrowing, result in capital outflows, lead to further currency weakness, and increase the cost of living for ordinary South Africans," the DA said in a statement.

Moody's said earlier on Wednesday that it has placed the Baa2 bond and issuer ratings of the SA government on review for downgrade.

Also placed on review for downgrade were South Africa's (P)Baa2/(P)P-2 shelf and MTN program ratings, the agency said in a statement.

The decision to place the ratings on review was prompted by the continuing rise in risks to the country's medium-term economic prospects and to its fiscal strength, notwithstanding the tighter fiscal stance undertaken in the 2016/17 budget, it said.

This came after South Africa's economic growth has been revised downwards from 1.7 percent to 0.9 percent in 2016, and its rising gross debt is projected to be 50.9 percent of GDP in 2016.

To avoid a downgrade by Moody's, the government will have to announce new measures to boost economic growth and demonstrate total commitment to implementing the fiscal consolidation path set out in Budget 2016, said David Maynier, DA Shadow Minister of Finance.

The budget debate was taking place in Parliament on Wednesday, but it's a pity that Minister of Finance Pravin Gordhan will not be present to explain what "concrete actions" will be taken to deal with Moody's "review for downgrade" decision, Maynier added.

Gordhan is currently abroad on an investor roadshow aimed at boosting confidence in investors who are nervous about a ratings downgrade to "junk status" in South Africa.

Gordhan said Wednesday through a local radio that re-assuring investors that South Africa can pay its debts will be key to avoiding a further downgrade.

"We owe R1.7 trillion (about 110 billion US dollars). Some to South Africans, others to international investors. All of them would want to know whether we are in a position to repay that debt," he said.

He said Moody's representatives will come to South Africa later this month to make a final decision. Enditem