S&P Global Ratings on Friday affirmed South Africa’s long- and short-term foreign and local currency bond ratings at BBB-/A-3 and BBB+/A-2 respectively.
The foreign currency bond rating remains one notch above sub-investment grade whereas the domestic currency bond rating remains three notches above subinvestment grade.
Among the risk factors S&P listed are:
- Low GDP growth is putting South Africa’s economic metrics at risk and could eventually weaken the government’s social contract with business and labour; and
- Rising political tensions are accentuating vulnerabilities in the country’s sovereign credit profile.
Still, it said, energy sector improvements will likely reduce some of the economic bottlenecks and pending finalisation of labour and mining reforms could engender a positive confidence shock.
It noted that “on the fiscal side, the government is showing greater resolve to reduce fiscal deficits at a faster pace than we expected”.
“We are therefore affirming our ‘BBB-/A-3’ foreign currency and ‘BBB+/A-2’ local currency ratings on South Africa.”
S&P maintained the negative outlook on the rating, citing concerns about economic growth and warned it could lower the rating by year-end or next year if policy measures do not turn the economy around.
Alternatively, S&P could revise the outlook to stable if they observe policy implementation that leads to an improved business confidence environment and increased private sector investment and ultimately result in higher levels of growth.
“The outlook remains negative, reflecting the potential adverse consequences of low GDP growth and signaling that we could lower our ratings on South Africa this year or next if policy measures do not turn the economy around,” the agency said.
National treasury welcomed S&P’s decision, saying the benefit of this decision is that South Africa is given more time to demonstrate further concrete implementation of reforms that are underway aimed at achieving higher levels of inclusive growth and place public finances on a sustainable path.
“The rating outcome demonstrates that South Africans can unite, especially during difficult times, to achieve a common mission. In this regard, government thanks all social partners for their efforts towards achieving this positive outcome and urges our partners to continue its close working relationship with government over the period ahead.”
Treasury said the government is aware that the next six months are critical and there is a need to step up the implementation of the nine-point plan and other measures to boost the economy.
Government, business and labour will collectively intensify efforts aimed at:
- Restoring confidence and boosting investment amongst local and international investors;
- Unblocking obstacles to faster employment growth in key sectors; and
- Undertaking fiscal, state-owned companies and regulatory reforms.