S&P Global ratings agency has affirmed South Africa’s long term foreign and local currency debt ratings at ‘BB-’ and ‘BB’, respectively, with a positive outlook.
The ratings agency downgraded South Africa’s government bonds deeper into junk territory with a stable outlook in April 2020 on the economic impact of the Covid-19 pandemic.
However, in May this year S&P revised South Africa’s credit rating outlook to positive from stable as favourable terms of trade improved the fiscal trajectory, though it maintained the sub-investment ratings.
On Friday night, S&P said the government’s economic and fiscal reforms could improve the country’s medium-term growth and debt trajectory.
S&P said that higher-than-expected tax revenue, relative to its expectations six months ago, will help to reduce the fiscal deficit as a proportion of gross domestic product (GDP).
“Higher-than-expected government revenue has supported the fiscal position this year, but fiscal pressures remain,” the ratings agency said.
In his mid-term budget statement delivered last month, finance minister Enoch Godongwana said revenue collection had exceeded projections and that the budget deficit would shrink more quickly than before, with debt stabilising at a lower level.
“The gross tax revenue estimate for 2022/23 has been revised up, by R83.5 billion, to R1.68 trillion. The higher estimate is largely due to improvements in corporate income tax collections, with strong receipts from the finance and manufacturing sectors,” Godongwana had said.
S&P on Friday said it also sees the low external debt position, flexible currency, and deep domestic capital markets as fundamental credit strengths that should cushion against external rising financing risks.
In response, the National Treasury on Saturday noted S&P’s decision, saying that it had to balance all the priority needs in its medium-term fiscal strategy.
“Government's medium-term fiscal strategy prioritises achieving fiscal sustainability by narrowing the budget deficit and stabilising debt; increasing spending on policy priorities such as security and infrastructure, thereby promoting economic growth; and reducing fiscal and economic risks, including through targeted support to key public entities and building fiscal buffers for future shocks,” it said.