MOODY’S DOWNGRADES ESWATINI’S RATING TO B3

MBABANE - American credit rating agency, Moody’s Investors Service on Monday downgraded the country’s long-term issuer rating to B3 from B2.

Moody’s further changed the outlook to stable from negative. According to information sourced from the Moody’s site, the downgrade to B3 reflects Moody’s expectation that the deterioration in the government’s debt burden and debt affordability will continue, weakening the sovereign’s fiscal strength.

Weak

“The government faces shocks such as the coronavirus-related revenue shock, from a weak position having failed to narrow its deficit to a large enough extent and for long enough to stabilise, let alone reverse, a prolonged increase in its debt burden. “Government liquidity risk, which remains elevated and evident in the large stock of government arrears, will continue to constrain growth prospects. External vulnerability is ever present due to thin foreign exchange reserves coverage of imports,” reported Moody’s.

On Monday this publication had reported that Eswatini’s total debt stock stood at E23.9 billion at the end of June 2020, an equivalent of 33.4 per cent of GDP. Reserves were recorded at 2.9 of imports cover at the end of the past month. According to Moody’s, the stable outlook at B3 is underpinned by the country’s relatively high income levels, which are materially above B3-rated peers, and a relatively well integrated and diversified economy despite its small size. Eswatini’s membership in the Common Monetary Area (CMA), and peg with the South African Rand provide a policy anchor and supports low and stable inflation, additional credit strength.

Ceilings

Concurrently, Moody’s has maintained the local-currency bond and deposit ceilings at Ba3 and the foreign-currency bond ceiling at B1, while lowering the foreign-currency deposit ceiling to Caa1 from B3. “Persistently large fiscal deficits have contributed to a steady rise in Eswatini’s debt burden and deterioration in the sovereign’s fiscal strength,” highlighted Moody’s.

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