SAR chief operating officer Zwelinzima Maziya. Image: Supplied.
Sovereign Africa Ratings (SAR) has announced its second credit rating on South Africa, affirming the country’s long-term and short-term credit ratings at BBB and B+, respectively, with a stable outlook.
This comes as South Africa’s sovereign credit ratings status remains below sub-investment among three major ratings agencies, with S&P Global skipping its review of the country on Friday while assessing the impact of the ongoing energy crisis.
SAR’s latest rating action follows its inaugural credit rating on South Africa announced in September 2022, and means there has not been a substantial change in the country’s ability to pay its debts.
SAR said this rating and outlook reflected its expectation of solid financial, fiscal and monetary flexibility despite the economic challenges faced by the country in the near to medium term.
The ratings agency highlighted the electricity shortage as one of the main challenges, which is expected to reduce the gross domestic product (GDP) by 2%, resulting in an estimated growth of only 0.3%.
It said other obstacles to growth included elevated inflation, increasing interest rates, global economic slowdown, geopolitical tensions, low consumer and business confidence, the high unemployment rate, and inefficiencies in state-owned enterprises.
SAR chief ratings officer David Mosaka said these factors presented credit challenges.
However, Mosaka said South Africa's economy was gradually becoming more resilient to electricity shortages as alternative sources of energy become more accessible and affordable.
He said the government's focus on infrastructure development, including increased involvement of the private sector, was expected to lead to announcements regarding ports, transport and water projects in 2023 and ongoing work in 2024.
Mosaka also noted that global inflationary pressures were projected to ease in the latter part of 2023, leading to interest rate cuts and improved global economic prospects starting in 2024.
“Despite the challenging environment, there are growing investment opportunities in the infrastructure sector, particularly in energy generation, transmission, transport, logistics, water and telecommunications,” Mosaka said.
“Policy and regulatory changes in these sectors have created space for increased private sector participation. South Africa's economy also possesses positive attributes, including a substantial external asset position, low levels of foreign currency debt, a large and diversified economy, export diversification, a robust financial system, and an effective exchange rate regime.
“The proactive monetary policy of the South African Reserve Bank, which has effectively managed inflation expectations, is also a positive factor contributing to the country's credit strength.”
According to SAR’s second credit rating report, South Africa’s gross debt is projected to rise from R4.73 trillion in 2022/23 to R5.84 trillion in 2025/26.
However, SAR said debt was expected to stabilise higher at 73.6% of GDP in 2025/26, compared to the Medium-Term Budget Policy Statement (MTBPS) projection of 71.4% in 2022/23.
SAR said debt service costs remained one of the largest spending categories, amounting to R340 billion for the fiscal year 2023/24.
It reiterated that it aimed to ensure that Africa and emerging markets have independent, fair and unbiased opinions of their creditworthiness as all African economies have been rated externally over the years.
SAR chief operating officer Zwelinzima Maziya said the credit rating industry had not seen new significant entrants to the market in more than 100 years, so the magnitude of their emergence could not be overemphasised.
Maziya said the difference between them and other ratings agencies was that SAR’s approach takes into account the structural nature of developing economies, including consideration for resource endowment beneficiation.
“The South African government’s efforts to address fiscal pressures, enhance revenue generation and promote economic growth are crucial for maintaining stability and improving the country’s creditworthiness,” he said.
“Continued implementation of structural reforms, effective management of public finances, and addressing socio-economic challenges will be instrumental in strengthening South Africa’s credit position in the long term.”
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