S&P lifts South Africa’s outlook to ‘positive’

Credit rating agency S&P Global has upgraded its outlook for South Africa to “positive” from “stable”.

“Recent favourable terms of trade in South Africa have improved the external and fiscal trajectory, while the country’s reasonably large net external asset position, flexible currency and deep domestic capital markets provide strong buffers against shifts in external financing,” S&P said in its report.

“We expect South Africa to post a current account surplus in 2022 – though smaller than in 2021 – for the third consecutive year, as prices for key metals and mining exports have risen significantly since the start of the Russia-Ukraine conflict,” said S&P.

It said that it expects higher-than-expected tax revenue, particularly from mining companies, will help to reduce the fiscal deficit and debt as a proportion of GDP relative to its expectations six months ago.

“Structural impediments are likely to continue to weigh on medium-term growth, particularly the unreliable electricity supply, weak investment expenditure, and an inflexible labour market with heavy unionisation across public and private sectors.

“Continued economic reforms, such as those related to diversifying electricity generation, third-party access to the freight rail network, privatisation of [state-owned enterprises], and changes to mining sector regulation, could deliver upside to growth,” said S&P.

The government said it welcomes the decision to revise the country’s credit rating outlook to positive from stable, while affirming the long-term foreign and local currency debt ratings at ‘BB-’ and ‘BB’, respectively.

According to S&P, recent favourable terms of trade in South Africa have improved the external and fiscal trajectory, while the country’s reasonably large net external asset position, flexible currency, and deep domestic capital markets provide strong buffers against shifts in external financing, it said.

S&P also noted some improvement on the implementation of key reform targets under Operation Vulindlela.

“As stated in the 2021 Medium Term Budget Policy Statement and 2022 Budget, government is using a portion of the additional revenue to accelerate debt stabilisation, with the majority targeted to address urgent social needs, promote job creation through the presidential employment initiative, and support the public health sector.

“Faster implementation of economic reforms, accompanied by fiscal consolidation to provide a stable foundation for growth, will support a faster recovery and higher levels of economic growth over the long term.”


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S&P lifts South Africa’s outlook to ‘positive’