Moody's rating agency changed its credit rating outlook from stable to negative for South Africa Wednesday, expressing concerns that politicians overseeing the continent's largest economy won't be able to stick to strict fiscal policies.
Moody's has said it fears commitment to low budget deficits could be undermined by pressure from factions of the governing African National Congress party, its labor movement supporters and a population facing high rates of poverty and unemployment. The agency also said a debate driven by the party's popular youth leader over whether mines should be nationalized is scaring investors.
In a statement, the South African finance ministry said Moody's should not see debate as a sign of political instability.
"Moody's acknowledges in its statement that South Africa's economic stewardship has been effective for more than a decade and that our fiscal and economic policy parameters have remained in line with expectations," it said. "We are disappointed that even in spite of this acknowledgment, they have changed the outlook on our rating from stable to negative."
Moody's acknowledged nationalization of mines or other sectors was unlikely, but said it that were to happen, it would reduce South Africa's attractiveness to investors, and encourage citizens and businesses to leave.
Moody's "believes that the political leadership's unwillingness to definitively reject demands from certain segments of the political spectrum for more activist policy interventions is harmful to South Africa's economic prospects, in particular private investment."
The agency did not change ratings it gave South Africa in 2009, when the local currency bond rating was downgraded from A2 to A3, both in the prime category, and the foreign currency bond rating was upgraded from a sub-prime Baa1 to A3.
Neren Rau, chief executive officer of the South African Chamber of Commerce and Industry, said that while he did not expect an imminent ratings downgrade, the outlook shift should be taken seriously.
Rau's chamber has been warning about the impact of the nationalization debate. The mining minister and other Cabinet members have repeatedly — and with increasing exasperation — said nationalization is not government policy.
But ANC Youth League leader Julius Malema's persistence in raising the issue and his popularity appears to be drowning out the assurances of policy makers.
Visiting business leaders and diplomats have recently raised nationalization as a concern even more than South Africa's high rates of violent crime, once an overriding issue for investors, Rau said.
"Nothing short of president speaking firmly against it will quell those concerns," Rau said.
The Democratic Alliance, South Africa's main opposition party, said in a statement Wednesday that the move by Moody's "will unfortunately further erode confidence in our economy, and could force government to pay higher interest rates on its debts in future. This means that fewer resources will be available for improving the lives of our people."
Copyright 2011 The Associated Press.