Moody's cuts South Africa's government bond rating to Baa1, outlook negative.

By bne IntelliNews October 1, 2012
Moody's Investors Service said it has downgraded South Africa's government bond rating by one notch to Baa1 from A3, citing concerns about the government's institutional strength and the countrys investment climate and political stability. The rating outlook remained negative because of the uncertainty surrounding critical policy decisions that will be made at the upcoming National General Conference of the ruling African National Congress (ANC) party in December, Moodys said in a statement. South Africa's medium- to long-term political and economic stability depends crucially upon how well the party is able to coalesce the ongoing policy discussions into concrete and effective decisions by that time, it added. The main driver for the downgrade of South Africa's ratings is Moody's lowered assessment of institutional strength to "moderate" from "high," due to its view that South African authorities have reduced capacity to handle the current political and economic situation and to implement effective strategies that could place the economy on a path to faster and more inclusive growth. The second key driver for the downgrade is the reduced room for manoeuvre for counter-cyclical macroeconomic policy actions, given the deterioration in the government's debt metrics since 2008, the uncertain revenue prospects and the already-low level of interest rates. The third driver for the downgrade is the more negative investment climate, which has been aggravated in recent years by shortfalls in energy, transportation and other infrastructure as well as high labour costs relative to productivity despite high unemployment, and increased concerns about South Africa's future political stability.

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