South Africa is weathering the storm
South Africa has remained resilient in 2026 despite massive energy shocks, and the country has been recognised by global rating agencies.
South Africa entered the year on a strong footing, with improved financial metrics and its first credit rating from S&P Global in two decades.
However, the US and Israeli strikes on Iran and the subsequent closure of the Strait of Hormuz led to a spike in global oil prices that raised questions about emerging markets.
Ruen Naidu, Portfolio Manager at Ninety One, said that South Africa surprisingly held up better than almost anyone expected.
Naidu added that Moody’s decision at the end of May to revise the country’s credit outlook from stable to positive, during the middle of an external shock, reflects positively on South Africa.
South Africa moved into sub-investment-grade (junk) status in 2020, with Moody’s being the last major rating agency to downgrade it.
Despite COVID-19, the July 2021 riots, load shedding and increased tensions with the United States, the country has shown some improvement.
This includes keeping state spending constrained and a commitment to reducing the nation’s debt-to-GDP trajectory.
This work led to S&P upgrading South Africa’s rating to two notches below investment grade, with a positive outlook.
Moody’s double-B flat is the same level, and while still not out of junk status, the nation is showing commitment to fiscal consolidation.
South Africa has been on the right path
Naidu added that South Africa’s numbers have also been positive for a while, with the nation posting a primary surplus for three years, with the government collecting more than it spends, excluding interest.
The main budget deficit came in at 4.3% last year, which was better than the 4.6% the National Treasury had projected. Tax revenues in April were also R5.9 billion higher than forecast.
“These are not trivial outcomes. They reflect a level of fiscal discipline that has, in our view, been underappreciated by markets,” said Naidu.
While the monetary picture was complicated by the closure of the Strait of Hormuz, the Reserve Bank entered a period of relative uncertainty in terms of strength.
The Monetary Policy Committee (MPC) was able to skip a March MPC meeting hike despite the war’s effects on global energy markets.
As the initial hopes that the conflict would be short-lived proved unfounded, inflation hit 4.0% in April, at the upper end of the Reserve Bank’s tolerance band. The MPC did hike rates in May.
Despite the conflict, the rand also remained resilient, with the nation’s export commodity basket handling much of the heavy lifting.
Gold benefited from greater central bank diversification away from dollar exposure, while coal, platinum and palladium have also seen gains.
The path for South Africa also looks more positive after the US and Iran agreed to a peace deal, which led to a complete end to military action.
This included reopening the Strait of Hormuz, which will allow around 20% of the global oil supply to flow again. The agreement also includes a halt to attacks in Lebanon from Israel.
Since the announcement of the deal, which will be signed in Geneva on Friday, oil prices have declined, while stocks have increased.
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