Moody's keeps S. Africa's negative outlook

International rating agency Moody's has kept South Africa's sovereign rating at Baa2, which is two-notch above sub-investment with a "negative" outlook.

"The negative outlook on South Africa's Baa2 government bond rating reflects risks related to the implementation of structural reforms aimed at restoring confidence and encouraging investment, upon which Moody's bases its expectations for a gradual growth recovery and debt stabilization in coming years," the agency said in a statement late Friday.

The negative outlook also recognizes the downside risks associated with political uncertainty and low business confidence as well as the challenging external environment characterized by low growth, investment and trade, Moody's said.

South Africa's rating would likely be downgraded in the absence of fundamental structural reforms supporting higher and sustainable medium term growth, the agency warned.

Continued accumulation of public debt and contingent liabilities in terms of GDP would also put downward pressure on ratings, said Moody's.

Finally, political infighting impeding the government's ability to implement key structural reforms and contributing to protracted low business confidence would also be negative, the agency said.

While a rating upgrade is unlikely, Moody's would change the outlook from negative to stable if the government would undertake structural reforms that would bring the economy on a path of higher and sustainable growth and stabilize the general government debt and contingent liabilities relative to GDP ratios, the agency said.

Boosting business confidence through reforms in the areas of labor markets, electricity, and state-owned enterprises would be credit positive, it said.

Earlier in the day, another rating agency Fitch changed South Africa's outlook from stable to negative, while affirming its Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at "BBB-", which is one notch above sub-investment.

South Africa has been racing to avert a sovereign rating downgrade to "junk" status that would raise its borrowing costs and deter investment. Endit