A major concern about a further downgrade had always been that South Africa would be ejected from the World Government Bond Index (WGBI), which requires that participants have at least one investment-grade rating, said Eddy, recalling that South Africa had already been downgraded to sub-investment grade, aka junk, by the other global ratings agencies.
“We are hanging in by the thread of the Moody's rating,” Eddy said.
Explaining the potential delay, Eddy said the FTSE, which maintains the WGBI, this week essentially put a freeze on the index constituents and weights for the month of April. That would mean that if Moody’s downgraded SA at their March meeting on Friday the ejection from the WGBI wouldn’t be immediate, “a small reprieve that will mean little in the long term”.
But, he said, a downgrade would also be softened by the fact that the South African Reserve Bank is providing additional liquidity in the bond market by buying South African Government Bonds across the curve in the secondary market.
Eddy added: “It feels ironic that just as many South Africans feel reassured by the strong leadership shown by President Cyril Ramaphosa in the face of the Covid-19 crisis, the threat of a reminder of the damage wreaked by his predecessor hangs over our heads.”
Those sentiments will be echoed by many, as will Eddy’s hope that perhaps Moody’s would also have noted that President Ramaphosa had started to show tough, effective leadership.
“We can only hope that President Ramaphosa is given a chance to show that he can build on the decisive leadership he has shown and continue to implement the tough choices that are required to dig the country out of the mess that it is in.”
