S&P Upgrades South Africa Credit Rating
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S&P Global Upgrades South Africa’s Credit Rating to BB
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Published November 17, 2023
Key Developments
On November 17, 2023, S&P Global Ratings upgraded South Africa’s long-term foreign currency credit rating from BB- to BB, bringing it in line with Moody’s Investors Service’s rating for the first time in several years.the local currency long-term rating was also raised to BB+ from BB. S&P affirmed a positive outlook, signaling the potential for further upgrades.
The upgrade follows South Africa’s recent removal from the Financial Action Task Force’s (FATF) gray list in February 2023, as reported by the FATF, and a positive medium-term budget policy statement (MTBPS) delivered earlier this week. These developments, combined with signs of improving economic growth, contributed to S&P’s decision.
Rationale Behind the Upgrade
S&P cited several key factors driving the upgrade. According to their official statement, these include stronger-than-expected tax revenue collection, consistent primary budget surpluses, and a reduction in risks associated with state-owned enterprises (SOEs), especially Eskom.
“the upgrade reflects south Africa’s improving growth and fiscal trajectory, alongside the reduction in contingent liabilities largely tied to performance improvements at the state-owned electricity utility, Eskom,” S&P stated. The agency expects South Africa’s GDP growth to increase to 1.1% in 2025 and average 1.5% between 2026 and 2028,attributing this growth to reforms in the electricity sector and other key industries.
The government’s commitment to fiscal consolidation, demonstrated by restrained expenditure and improved revenue collection, has also played a notable role.Eskom’s recent return to profitability - its first in eight years – has lessened the burden of financial support from the state, further reducing contingent liabilities.
Impact and Implications
The upgrade to BB,while still two notches below investment grade,is a significant step forward for South Africa. It could lead to lower borrowing costs for the government and South African companies, making it more attractive for foreign investment. A higher credit rating signals reduced risk to investors.
However, the positive outlook suggests that further improvements are needed to achieve investment grade status.Continued progress on structural reforms, particularly in the energy sector, and sustained fiscal discipline will be crucial.Operation Vulindlela, a government initiative focused on accelerating structural reforms, is expected to play a key role in this process, as noted by the South African government’s official website.