S&P Global Ratings on Friday affirmed South Africa’s sub-investment grade credit rating and kept its outlook stable.
“Despite upward revisions, South Africa’s economic growth remains tentative, and the government’s debt burden continues on a rising path.
“After the recent political transition, authorities are pursuing key economic and social reforms, but we consider the economic and social challenges the country faces as considerable,” the ratings firm said.
S&P rates South Africa’s foreign currency debt ‘BB’ and its local currency debt ‘BB+’, having downgraded the country to “junk” status in 2017.
“The stable outlook reflects our view that economic growth will pick up modestly over the next year, while government debt will remain above 50% of GDP. The outlook also reflects our view that the government will pursue economic and social reforms,” S&P said.
“Our ratings on South Africa are constrained by the weak pace of economic growth, particularly on a per capita basis, as well as its large fiscal debt burden and
sizable contingent liabilities.
“The ratings are supported by the country’s monetary flexibility, large domestic financial sector, and deep capital markets, alongside moderate external debt, with very low levels of external debt denominated in foreign currency.”
S&P said it could lower the ratings if it were to observe fiscal deterioration, for example, due to higher expenditure pressures or weaker economic performance.
“We could also consider lowering the ratings if the rule of law, property rights, or enforcement of contracts were to weaken, undermining the investment and economic outlook.”
S&P said it could raise the ratings if economic growth or fiscal outcomes strengthen in a significant and sustained manner compared with its current projections.
“Ratings upside could also arise if the risks of a deterioration in external funding sources were to subside, and external imbalances declined.
“We could also take a positive rating action if policymakers were to introduce structural economic reforms that delivered improved competitiveness and employment,” the group said.