(Bloomberg) -- South Africa’s rand was quoted stronger in early Asia-Pacific trading hours on Monday after the country clung to its last investment-grade credit rating.

Moody’s Investors Service on Friday announced that it had decided not to downgrade the country’s credit score to junk, although it did reduce the outlook to negative. This came even after the country released forecasts last week that showed its financial situation is rapidly deteriorating.

The U.S. dollar was quoted as much as 1.2% lower against its South African peer at 14.8603 rand per greenback.

Moody’s held the nation’s foreign- and local-currency readings at Baa3, one step above speculative grade. The nation is already rated below investment grade at S&P Global Ratings and Fitch Ratings, both of which shifted its status to junk in 2017.

If Moody’s cuts South Africa’s rating, the country would lose its place in the FTSE World Government Bond Index. Exiting it would spark an investor sell-off and outflows of as much as $15 billion, according to Bank of New York Mellon Corp., at a time when the nation needs portfolio investment to finance its persistent current-account deficit. A downgrade would also raise borrowing costs, complicating the government’s efforts to balance the budget.

Bank of America Corp. expects the Baa3 rating to be cut after a budget statement in February.

The change in outlook from Moody’s reflects “the material risk that the government will not succeed in arresting the deterioration of its finances through a revival in economic growth and fiscal consolidation measures,” the credit assessor said in a statement Friday.

Eskom Debt

The country is already spending 138 billion rand ($9.2 billion) to bail out Eskom Holdings SOC Ltd., the cash-strapped power utility that is seen as the biggest risk to the economy and is saddled with 450 billion rand of debt. Rolling blackouts caused economic output to contract the most in a decade in the first quarter and prompted the Treasury to slash its growth forecast for this year to 0.5%.

“South Africa has been a car crash in slow motion,” Cristian Maggio, London-based head of emerging-market strategy at TD Securities, said ahead of the market open. “We’re still at a point where that car has not hit that wall, but you can definitely see that’s where they’re going.”

The rating affirmation affords South Africa a “narrow window to demonstrate faster and concrete implementation of reforms,” South Africa’s National Treasury said in a statement after the announcement from Moody’s. “Economic reforms have to be implemented without delay.”

--With assistance from Benjamin Purvis, Ana Monteiro and Hari Govind.

To contact the reporters on this story: Michael G. Wilson in Sydney at mwilson176@bloomberg.net;Paul Wallace in Dubai at pwallace25@bloomberg.net

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Adam Haigh

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