Anchor Capital has remained optimistic about South Africa’s sovereign credit ratings in spite of three major ratings agencies holding it in below investment status.
Last week, S&P Global Ratings affirmed South Africa’s long-term foreign and local currency debt ratings, at BB- and BB, respectively, and maintain the stable outlook.
Moody’s Investor Services also maintained South Africa’s stable outlook earlier this month, following the Medium-Term Budget Policy Statement (MTBPS), but rates South Africa’s long-term foreign debt at a sub-investment grade Ba2.
In July, Fitch Ratings Fitch maintained its BB- credit rating on South Africa and kept its stable outlook on the country’s long-term foreign and local currency debt ratings.
Anchor Capital’s investment analyst, Casey Delport, said yesterday that South Africa stood as a seemingly resilient protagonist in the tempest of economic uncertainty, with the country’s sovereign credit ratings continuing to hold firm despite an increasingly difficult fiscal environment.
“Whilst junk status is by no means a credit rating that any sovereign desires, it can be construed as somewhat of a positive that our ratings have not worsened further into junk territory – despite an increasingly difficult fiscal environment,” Delport said.
“While economic growth has not been forthcoming and concerns about SA’s growing debt burden remain rife, the key global rating agencies have noted that the country’s economic reform efforts thus far are expected to help, in part, support economic growth over the medium-term, thus providing some level of buffer.”
Sovereign credit ratings are essentially assessments provided by credit rating agencies to gauge the creditworthiness of a country’s government and its ability to meet financial obligations, particularly debt repayments.
Sovereigns with Baa3/BBB- or higher ratings are considered investment grade while those with Ba1/BB+ or lower ratings are regarded as non-investment grade, often called junk status.
The country’s precarious fiscal situation has again come under the spotlight, with the tabling of the 2023 MTBP, which forecast revenues for the 2023/24 financial year to be around R56.8 billion lower than projected in February.
This is primarily because of lower commodity prices, weaker global growth, increased load shedding and the various logistical constraints that have weighed heavily on mining sector corporate tax collections.
The budget deficit is expected to come in at 4.9% of gross domestic product for FY23/FY24, with debt projected to stabilise at 77.7% of GDP in FY25/FY26, compared to 73.6% in the 2023 Budget.
Delport said South Africa had seen a significant decrease in its credit quality from 2012 to 2022, due to various persistent issues, among them high levels of public debt, political uncertainties and structural economic challenges that have contributed to a complex fiscal landscape.
“The country’s struggle with low economic growth rates, unemployment and inequality further compounds these difficulties. External factors, including complex global economic conditions and commodity price volatility, have added an additional layer of unpredictability,” she said.
“During the period above, SA’s credit rating fell from a BBB+ rating to a BB- rating. This translates to a drop from being on the brink of having high-grade credit quality to falling into speculative grade, that is, junk status. Since then, SA has languished at the same rating levels.”
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