SA backed by Japanese agency
THE largest credit rating agency in Japan, R&I, yesterday announced that it has reaffirmed South Africa’s longterm foreign currency debt rating at BBB and local currency debt rating at BBB+, an indication that the country’s reforms are on the right track.
Local currency borrowing makes up about 90% of the SA’s total R2.2 trillion of debt.
SA has avoided a cut to junk and retained its place in the Citi’s World Government Bond Index (WGBI), the biggest of the global benchmarks and tracked by about $23 trillion of funds.
The R&I announcement follows hot on the heels of Moody’s decision last month which also affirmed SA’s investmentgrade credit rating and revised its credit outlook to “stable from negative”.
Moody’s said that the previous weakening of national institutions was gradually reversing which supported an economic recovery.
R&I assigns ratings to about 700 Japanese entities and it has also revised SA’s outlook to stable from negative.
The good news is that the R&I action notably confirms the country’s sovereign as an investment grade credit.
The Japanese agency said the ratings affirmation reflects the improved growth performance and prospects, fiscal adjustment plans in the 2018 Budget that would stabilise debt burdens and changes in the administration that are expected to help eradicate policy uncertainty.
Further, the agency noted that the political situation in SA continues to entail some policy risks that warrant attention, but cautioned that in order to unify the ANC, it would be essential for President Cyril Ramaphosa to restore party strength and meet reform expectations.
In response to R&I, the national Treasury said it welcomed the decision, and that, going forward, the country aims to improve its investment and economic prospects.
“The government continues to work diligently on practical steps to provide the necessary policy certainty such as the finalisation of mining legislation.
“The rating action by R&I demonstrates that South Africans working together can achieve remarkable outcomes,” the Treasury said.
Analysts said the adjustment from negative to stable gives some hope for the country, as well as the ability to borrow again on international markets, but the new political leadership must make sure that they carry on with the country’s momentum and not allow it to slip along the way.
The first quarter Policy Uncertainty Index (PUI) published by the University of North West Business School, lead by Prof Raymond Parsons, also painted a “sweet” picture as the index fell sharply to 49.6 compared to 55.4 in the fourth quarter of 2017.
Parsons said the latest decline in the PUI is the outcome of a combination of favourable political and economic factors over the past three months which have helped to ameliorate political and policy uncertainty.
“The global economic outlook remains broadly supportive of the SA economy, and the tentative economic recovery of last year has now broadened into a more generalised upturn, with higher levels of business and consumer confidence now also reflected in the lower PUI.
“A growth rate of about 2% is possible for SA in the short term.
“The positive assessment from credit ratings agencies is also a testimony that the country’s path to reforms is on the right track.”