8 May 2003

International ratings agency Standard and Poor's followed other rating agencies on Wednesday, raising its long-term foreign currency ratings on South Africa from 'BBB-' to 'BBB', and its local currency ratings from 'A-/A-2' to 'A/A-1'.

Standard and Poor's also affirmed South Africa's 'A-3' short-term foreign currency ratings, declaring the outlook for these ratings as "stable".

This is the fifth ratings upgrade South Africa has received in the last 18 months, the latest coming last week, when Fitch Ratings upgraded South Africa's long-term foreign currency rating from 'BBB-' to 'BBB'.

Credit ratings are used to assess the risk that a country will default on its debt obligations. The better the rating, the lower the risk premium a country has to pay if it wants to borrow money on the capital markets.

National Treasury acting chief operating officer Logan Wort told the SA Press Association (Sapa) that the latest upgrades reflected the continued strength of South Africa's macroeconomic performance and improvements in the country's external position.

Standard and Poor's cited South Africa's track record on fiscal management as the key factor underpinning improvements in the country's creditworthiness, saying that "the government's strategy of broadening the tax base and improving tax administration continues to underpin a strong revenue performance, providing government spending flexibility".

This had enabled a cautious shift towards a growth-orientated fiscal stance, the agency noted, with higher infrastructure and social expenditure, and tax cuts for lower- and middle-income households.

Standard and Poor's also praised the country's monetary policy, highlighting improvements in its external position and liquidity, as well as the phasing out of the SA Reserve Bank's net open forward position and the gradual relaxation of exchange controls. The credibility of the Bank's inflation targeting was also cited as contributing to prudent monetary policy.

Wort told Sapa that South Africa's economic growth numbers continue to outperform those of other countries, and that the country continued to successfully weather the current economic global slowdown.

He added that the upgrade was particularly significant as it came on the eve of a roadshow in Europe that will precede the Treasury's issuance of a Euro-denominated bond to a wide variety of institutional and retail investors.

"Our solid economic policies as well as our rapidly improving credit story confirm South Africa as a haven for both foreign direct and portfolio investments," Wort said.

Five upgrades in 18 months
Last Friday, Fitch Ratings upgraded South Africa's long-term foreign currency rating from 'BBB-' to 'BBB'. The long-term rating for South Africa's currency, the rand, was also upgraded from 'BBB+' to 'A-'. The outlook for both ratings was given as "stable".

In November 2002, Standard and Poor's revised its outlook on South Africa from stable to positive, while affirming the country's then 'BBB-' long-term foreign currency debt rating and 'A-' long-term local currency debt rating. In August 2002, Fitch revised the outlook on South Africa's foreign currency debt from stable to positive.

And in November 2001, Moody's upgraded SA's long-term foreign currency debt from 'Baa3' to 'Baa2' and hiked the government's domestic debt by two notches from 'Baa1' to 'A2'.

Fitch attributed its latest upgrade to resilience in the South African economy, citing SA's track record on fiscal management, the downward trend in the country's public debt external ratios since 1995, fast export growth as well as a sound and consistent monetary policy management regime as factors underpinning the improvements in SA's creditworthiness.

"The upgrade reflects a strengthened policy regime which has resulted in a steady improvement in public and external economic indicators over the past six years and improved resilience of the South African economy to external shocks," Fitch said.

In light of the latest upgrade, Fitch has also changed its rating for five banks in South Africa:

• Absa: foreign currency short- and long-term ratings of 'F3/BBB' outlook stable, and individual and support ratings of 'C' and '2' respectively.
• FirstRand: foreign currency short- and long-term ratings of 'F3/BBB' and local currency long-term rating of 'A-' outlook stable, and individual and support ratings of 'B/C' and '2' respectively.
• Investec: foreign currency short- and long-term ratings of 'F3/BBB' outlook stable, and individual and support ratings of 'B/C' and '5' respectively.
• Nedcor: foreign currency short- and long-term ratings of 'F3/BBB' (BBB) and local currency long-term rating of 'BBB' outlook stable, and individual and support ratings of 'B/C' and '2' respectively.
• Standard Bank: foreign currency short- and long-term ratings of 'F3/BBB' and local currency long-term rating of 'A-' outlook stable, and individual and support ratings of 'B/C' and '2' respectively.

"The government has, and continues to, lay a solid foundation of stable, consistent and prudent economic management policies for sustainable growth and development."

SouthAfrica.info reporter

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