Outlook revised to stable on more transparent policies

South Africa escaped a third junk rating as Moody’s Investors Service kept its assessment of the nation’s debt unchanged, citing more transparent and predictable policies under President Cyril Ramaphosa.

The African nation’s outlook was revised to stable from negative. The decision will boost sentiment and probably bolster the rand, which rallied after Ramaphosa took over as leader of the ruling African National Congress in December and became president last month. With the local-currency rating remaining investment grade, the nation avoids being excluded from global benchmark indexes that could have led to outflows of as much as much as R100 billion ($8.4 billion).

Moody’s maintained the nation’s local- and foreign-currency assessments at Baa3, the lowest investment-grade level, the ratings company said in a statement on Friday. The affirmation keeps South Africa on the same level as that of Indonesia and Romania.

“The recent change in political leadership appears to have halted the gradual erosion of the strength of South Africa’s institutions,” Moody’s analysts Zuzana Brixiova and Marie Diron wrote in the statement.

While economic growth in Africa’s most-industrialized economy exceeded the government’s forecast last year, it’s been below 2% since 2014. Finance Minister Nhlanhla Nene, who was reappointed last month, said the National Treasury may raise its projected 1.5% growth forecast for 2018.

The National Treasury said it’s working to provide policy certainty on issues such as mining legislation.

“This places us in purgatory, so we aren’t going to heaven and we aren’t going to hell either,” Thabi Leoka, an independent economist in Johannesburg, said by phone before the announcement. “We still have very low growth over the next two years and we still have a revenue shortfall, while already surpassing the spending ceiling and we need to fix all of those, quite significantly, before we can actually be in a comfortable position regarding our rating.”

Fitch Ratings affirmed the country’s debt scores at its highest non-investment grade in November with a stable outlook while S&P Global Ratings lowered the nation’s rand debt to junk and cut the foreign-currency assessment to two levels below investment grade. S&P is scheduled to make a rating announcement on May 25.

The rand led gains among the world’s major peers in the week ended Friday, climbing almost 2% against the US dollar on speculation South Africa would avert a downgrade. The currency has risen more than 5% this year.

Rand up more than 5% this year