The National Treasury “notes and welcomes” S&P Global Ratings decision to revise South Africa’s ratings outlook from stable to positive on improved reform programme and economic growth potential.
However, the ratings agency, in a statement late on Friday night, maintained South Africa’s credit ratings status below investment grade, with the sovereign’s long-term foreign and local currency debt ratings at ‘BB-’ and ‘BB’, respectively.
A sovereign credit rating is an independent assessment of the creditworthiness of a country or sovereign entity. Sovereign credit ratings can give investors insights into the level of risk associated with investing in the debt of a particular country, including any political risk.
According to S&P, the positive outlook reflected the agency’s view that increased political stability following the May 2024 general elections and impetus for reform could boost private investment and gross domestic product (GDP) growth.
S&P further stated that since the formation of the new broad coalition of 11 political parties under the Government of National Unity (GNU), debt yields and portfolio inflows have improved, leading to easing financing conditions and currency strengthening.
Despite the government publishing weaker fiscal projections in the most recent Medium-Term Budget Policy Statement (MTBPS), which was presented by Finance Minister Enoch Godongwana, compared with those it published in the February 2024 Budget Review, the ratings agency sees higher fiscal policy predictability regarding efforts towards achieving primary surpluses and fiscal consolidation.
“We, therefore, lowered our forecasts for the change in net general government debt to 5.3% of GDP on average over fiscal years 2024-2027 (year ending March 31 of the following year), from 6.0% in our previous review,” said S&P in its ratings statement.
“However, spending pressure and risks to wages, social spending, and transfers to State-Owned Enterprises (SOEs) will keep gross general government debt levels rising to 80% of GDP by fiscal 2027. This is above government estimates, which forecast debt stabilising at 75% of GDP by fiscal 2026.”
S&P also said its ratings on South Africa benefited from the sizeable and sophisticated financial system that provides a deep funding base for the government.
It said the country has relatively strong institutions, particularly the South African Reserve Bank (SARB).
“In our view, the SARB's proactive monetary policy response has slowed consumer price increases and we expect inflation to inch below the midpoint of the SARB's 3%-6% target range,” it said.
Meanwhile, S&P forecast higher growth of 1.4% on average over the next three years, partly supported by slowing inflation and declining interest rates, as well as the recent Two-Pot retirement system that allows people to partially withdraw funds from their retirement accounts.
The S&P economic growth projections are slightly lower than the government's largely because of the ratings agency’s less-supportive view on investment.
It said real GDP growth will pick up slightly to 1.0% this year from 0.7% in 2023, as more private sector-driven electricity supply comes onstream.
“We expect South African GDP growth will increase to 1.4% over 2025-2027 from 1.0% in 2024 as electricity load shedding has eased, but ongoing logistics bottlenecks will continue constraining economic activity,” it said.
“Nevertheless, still-subdued consumption and logistics bottlenecks around railway capacity and port operations continue to affect activity across several sectors, including export-oriented ones. In addition, agriculture contracted 10% in the first half of the year due to drought and animal disease.”
Treasury said, “The government’s strategy focuses on achieving fiscal sustainability, supporting economic growth and critical social services, and addressing significant fiscal and economic risks,” it said.
“The four pillars of economic growth strategy are: (i) Maintaining macroeconomic stability; (ii) Implementing structural reforms; (iii) Building state capability; and (iv) Supporting growth-enhancing public infrastructure investment.”
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