S&P UPGRADES SOUTH AFRICA’S OUTLOOK TO ‘POSITIVE’
JOHANNESBURG
- After the credit rating agen cy Moody’s upgraded South Africa’s outlook last month, S&P Global has now also improved its outlook to “positive” from “stable.”
This was thanks in large part to strong commodity prices which are boosting the coun try’s tax income and exports.
It also highlighted progress in South Africa's fiscal posi tion, while government ad opted some reforms, includ ing allowing private electricity generation and the auctioning of broadband spectrum.
Its rating of South African government’s credit (at “BB- /B”) remains “junk,” however. A "junk" rating means there's a bigger chance that the govern ment won’t be able to pay back its debts.
In 2017, S&P cut South Af rica’s rating from investment grade to junk, and in 2020 lowered its rating even further into junk territory, as it warned of a big fallout from Covid-19 on the economy and tax revenues.
However, on Friday night, S&P highlighted that there had been a strong recovery in consumption as lockdown measures were eased. Bumper mining profits also bolstered tax income.
High prices for South Afri ca's key exports of coal, plati num group metals, gold, and iron ore are also driving strong exports. These are, however, constrained by problems with load shedding and Transnet’s rail infrastructure.
"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.
"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 our expectations six months ago."
The credit rating agency now expects that government’s budget deficit will gradually narrow to five percent of GDP by March 2026.
There are fiscal risks, how ever, including pressure to increase public sector wages, further extensions of the Social Relief of Distress grant, and more financial demands from Eskom and other state-owned enterprises.
Also, S&P expects growth will decline to eight percent in 2022 and taper off to an aver age of 1.7 percent over the next three years.
S&P notes that implemen tation of the Zondo commis sion's recommendations on state capture, as well as key structural reforms will be "challenging," but their ac celeration could improve per ceptions of corruption and the investment climate.
In a statement, government welcomed S&P’s decision to re vise South Africa’s credit rating outlook to positive from stable. – FIN24.