With Brazil’s economy heading for its worst contraction in a quarter century, government revenue is falling more than expected.
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Moody’s downgraded South Africa credit rating to Baa2 with a stable outlook in November last year, which is two levels above junk status.
According to the Palácio do Planalto’s evaluation, this was a result of the work done by Minister Joaquim Levy (Finance) in meetings with the Moody’s team.
Moody’s rates SA at Baa2 with a stable outlook.
The consequent downgrade could come in early Q1 17, unless there is a meaningful change in the political coordination between the government and Congress. The current political crisis is affecting the economic environment and postponing important adjustments that could structurally change how fiscal expenditures grow in Brazil and avoid a deterioration path of the gross debt.
The rating agency identified power utility Eskom and the South African National Roads Agency as examples in a South African credit opinion report it released on Wednesday.
Brazil’s Ibovespa index pared losses and the real rebounded as the market took solace in the stable perspective, said Jefferson Rugik, a currency trader at Correparti Corretora de Cambio in Curitiba, Brazil. Government would need to “make cuts elsewhere” in order to pay for public-servant wage increases agreed to this year if it was to keep within its spending ceiling targets, Moody’s said.
In an August 4-5 poll by Datafolha, 66 percent of respondents say Congress should open impeachment proceedings. At the time it said that the rating was a reflection of weak economic growth prospects due to constraints such as infrastructure and other issues.
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Levy has been pursuing a series of spending cuts and tax hikes aimed at curbing budget deficits that had spiraled during Rousseff’s first term in office.
