Moody’s changes South African credit rating outlook to negative

Nov 10, 2011

Moody’s rating agency changed its credit rating outlook from stable to negative for South Africa yesterday (November 9th).

Moody’s rating agency changed its credit rating outlook from stable to negative for South Africa yesterday (November 9th).

The agency took this decision because of a greater political risk due to increasing constraints on public finances, Xinhua news agency reports.

"Political commitment to low budget deficits and the ability to keep within current debt targets could be undermined by popular pressures and rising internal strains," Moody's said in a statement.

Moody's also believes the growth will be slightly lower than forecast, at three to 3.5 percent mid-term, which will be insufficient to slow the rise in unemployment and likely to increase social tensions.

This announcement follows the downgrade by one notch of Egypt's long-term rating on October 27th, which now stands at B1 with a negative outlook.

The agency said this decision was prompted by the country's ongoing economic weakness and financial deterioration as it struggles to recover from the revolution, according to a press release published by AFP.

Such a downgrade can lead to greater difficulties in borrowing, with an increase in interest rates. This can slow company investments and make them weaker, resulting in higher unemployment.
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