South Africa’s sovereign credit ratings status is at investment grade with a medium risk of a default.
This is the view of the Sovereign Africa Ratings (SAR) which published its inaugural credit rating for South Africa, placing the country’s sovereign bonds at investment grade.
The rating goes against the grain as the three major ratings agencies – S&P Global, Fitch ratings, and Moody’s International – have all placed South Africa’s bonds deep into the sub-investment territory.
SAR today affirmed South Africa’s long-term sovereign status at BBB and at B+ in the short term, with a stable outlook.
The Financial Sector Conduct Authority (FSCA) approved the licence application of SAR to operate as a credit rating agency from March 8, this year.
SAR chief ratings officer David Mosaka said their rating had taken a lot of factors into consideration about South Africa’s ability to repay its debt including foreign reserves, and its ability to tap into financial markets.
As a result, Mosaka said South Africa’s investment status was stable with only a medium risk for a default.
“The natural resource endowments for South Africa remain a key asset for wealth generation, resource rents and diversification of the economy,” Mosaka said.
“The financial sector is stable, with banks holding adequate capital and the liquidity is sufficient for external obligations.”
However, Mosaka said they were realistic about the country’s fiscal challenges
“South Africa is facing headwinds in terms of rising debt, energy adequacy rising prices as well as increasing inflation prospects,” he said.
“The country’s fiscal position is relatively weak which is attributed to Covid-19-related spending in 2020 and 2021.
“Contingent liabilities, government guarantees to State-owned enterprises, possible public sector wage bill, and the discussions of the universal basic income grant can upset the gains paced by the government to contain and manage the rising government debt level.”
Moody's Investors Service in April changed the outlook on South Africa to stable from negative, affirming the country’s Ba2 long-term local and foreign currency issuer and senior unsecured debt ratings.
In May, S&P Global revised South Africa’s credit rating outlook to positive from stable, while affirming the long term foreign and local currency debt ratings at ‘BB-’ and ‘BB’, respectively.
This was followed by Fitch Ratings agency which also affirmed South Africa's long-term foreign-currency issuer default rating at 'BB-' with a stable outlook in July.
Political analyst Prof Steven Friedman hailed the SAR’s establishment and its inaugural ratings report, saying that he had a particular interest in the rating agencies based on some personal experiences.
“I think the best way to introduce what I have to say is to make a very confident prediction that SAR’s first rating of South Africa will be widely trashed, widely dismissed by the heavy weights in the rating industry, as a bunch of unqualified Africans trying to horn in on the territory of those who know how to do these things,” Friedman said.
“But my interest in the rating agencies is that I think that they are extremely academic, but there's a very important colonial dynamic which underpins the whole way in which rating agencies operate on our continent.
“And the reason I believe that there hasn't been an African rating agencies before is assumed that sovereign ratings are not something which Africans ought to be involved in.”