SA ratings outlook upgraded
14 Novemer 2002
International ratings agency Standard and Poor's this week revised its outlook on South Africa from stable to positive, while affirming the country's BBB- long-term foreign currency debt rating and its A- long-term local currency debt rating.
"The outlook change reflects South Africa's continued strong fiscal performance and ongoing improvements in the country's external position", said Standard & Poor's credit analyst Konrad Reuss, adding that the government had "continued to strengthen its track record of sound economic management in a challenging external environment, and is not expected to deviate from its course of orthodox economic policies in the foreseeable future."
On the fiscal front, the agency noted, the government's strategy of broadening the tax base and improving tax administration continues to underpin a strong revenue performance, resulting in a downward revision of the national government
deficit for fiscal 2002/2003, to
1.6% of GDP from 2.1%.
"Over the medium term, deficits are projected to stay in a narrow range around 2% of GDP, providing the government with renewed fiscal flexibility and supporting a
steady reduction of the debt-to-GDP ratio, with national government debt
expected to fall to about 40% of GDP in the next fiscal year", the agency said in a statement.
External debt expected to trend down
The government's external position and liquidity are also steadily improving, underpinned by a recovery in capital inflows, a broadly balanced current account, and the aggressive phasing-out of the Reserve Bank's net open forward position.
"Net external debt is projected to trend down to about 15% of current account receipts, and net public sector external debt to about 20%."
South Africa's external liquidity remains comparatively modest, the agency noted, with official reserves currently covering just over 70% of the financing gap, "but
coverage is likely to improve further in the medium term, assuming robust capital inflows and a free-floating exchange rate."
On the monetary side, the agency said, the Reserve Bank remains firmly committed to lowering inflation, and its inflation-targeting framework "remains effective,
notwithstanding the setback to the disinflation process due to last year's
rand volatility".
Factors inhibiting growth
While the country's economy had been reasonably successful in weathering the
current global slowdown, Standard & Poor's continued, growth was unlikely to rise above 4% over the medium term. Factors seen as constraining growth included low levels of domestic savings and investment, labour market rigidities, and a high incidence of HIV/Aids.
"Cautious fiscal and monetary policies, coupled with growth-enhancing
structural reforms, will bolster the ratings on South Africa over the
coming years", Reuss said, adding that a
successful revitalisation of the
privatisation process would support a rating upgrade by acting as a
catalyst for higher foreign direct investment and supporting further
debt reduction.
"Longer-term rating prospects hinge on higher growth, which
will remain elusive until there is a significant improvement in the
domestic rate of savings and investment and a sustained increase in the
level of FDI inflows", Reuss added.
Third ratings upgrade within a year
Standard and Poor's added that it expected sound fiscal and monetary policies coupled with growth-enhancing fiscal reforms to bolster SA’s ratings further over the coming years.
This is the third rating agency upgrades South Africa has received in the last 12 months. 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.
And in August this year, Fitch Ratings
revised the outlook on South Africa's foreign currency debt from stable to positive.
The National Treasury said in a statement this week that the upgrades “confirmed the correctness of South Africa's macro-economic policy stance. Their impact on the fiscus will be a further decline in debt service costs, which will allow us to make even more resources available for social and infrastructure spending.”
More importantly, the Treasury added, the upgrades “confirm a perception of 'safe haven' status that investors are gradually developing about South Africa in a world ravaged by slow economic growth and rampant rating downgrades.
“We continue to believe that with a strong macroeconomic policy foundation, growth-enhancing structural reforms and resultant resilience of the South African economy, it is possible to grow this economy to levels that will make it possible to meaningfully reduce poverty and unemployment.”
SouthAfrica.info reporter
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