South Africa to benefit from more positive credit ratings views

Moody’s and Fitch have South Africa on stable outlooks, but S&P already has South Africa on a positive outlook. Picture: Reuters

Moody’s and Fitch have South Africa on stable outlooks, but S&P already has South Africa on a positive outlook. Picture: Reuters

Published Nov 4, 2022


South Africa is unlikely to see further credit rating downgrades, while a rating upgrade is probable due to a big improvement in government finances and stronger fiscal path, say economists .

International credit rating agency Moody’s Investor Service will assess its ratings on South Africa on November 18, as does Standard & Poor (S&P), while Fitch could also do so this month - it does not provide dates of its assessments, Investec’s chief economist Annabel Bishop said in a note.

Her view was shared by Optimum Investment Group’s economic adviser, Dr Roelof Botha, who said yesterday: “I have no doubt our next credit reviews will be positive, barring any further surprises. We might not get to investment grade, but it does not matter. The positive sentiment will drive investment, such as into our equities that offer low valuations.”

Old Mutual Investment Group chief economist Johann Els said he anticipated more positive comments from the credit rating agencies in their next assessments, but he believed they might only upgrade the ratings and outlook after the Budget in February.

This was so that the more positive economic news in last month’s Medium-Term Budget Policy statement was confirmed in the Budget. Els did not, however, rule out the possibility of a more positive outlook from Fitch.

With South Africa’s debt to gross domestic product ratio once anticipated to peak at 95%, but which was currently sitting at around 72%, “we (South Africa) have come a long way, and they (credit rating agencies) will want to reflect that” said Els.

Both Moody’s and Fitch have South Africa on stable outlooks, but S&P already has South Africa on a positive outlook.

Bishop said Moody’s already rates South Africa on Ba2, which is equivalent to a BB rating from Fitch and S&P, who both have South Africa on BB-, and so Moody’s assesses South Africa’s long-term, foreign currency sovereign credit rating one notch higher than S&P and Fitch do.

Moody’s had already said it recognised that the 2022 Medium- Term Budget Policy Statement’s (MTBPS) “stronger revenue projections and improved fiscal forecasts point to lower debt trajectory”, ”which reaffirmed its commitment to fiscal consolidation despite the global energy and food price shocks.”

“We do not expect an actual credit rating upgrade from Moody’s this year as the rating is already stronger than Fitch and S&P’s, while the agency did not yet accept the fiscal consolidation of the state will materialise as planned, and would instead be slightly weaker,” said Bishop.

She said S&P had yet to give communications on South Africa’s MTBPS. It moved South Africa’s outlook to positive in May and could upgrade the country in November, “although we think it will wait until after December’s ANC conference and 2023 Budget, if it moves in the next six to 12 months.”

Botha said Moody’s also recently affirmed electricity utility Eskom’s corporate family rating to Caa1 and raise the outlook on Eskom’s debt rating from negative to positive, “ending a 15-year downward spiral.”

This had followed the government’s recent announcement that it was finding a way to take over some of Eskom’s debt.

“The ratings agency has clearly acknowledged the advantages of National Treasury’s debt relief,” said Botha. ”Eskom would simply not have received a provisional thumbs-up from Moody’s in the absence of fundamental fiscal stability having been achieved,” he said.

He said, it “expect(ed) a slightly slower fiscal consolidation than the government… because of our expectation of higher spending pressures and constrained economic growth prospects of 1%-1.5% over the next few years.”