Moody’s lifts SA outlook to positive on reforms, keeps ‘junk’ rating

Confidence appears to be increasing in the South African government’s handling of the country’s fiscal position and its consistent strides towards structural reform.
This is according to Moody’s Ratings agency, which kept the country’s credit rating unchanged at Ba2, which means that the country’s credit status is still in junk territory.
Importantly, though, the ratings agency shifted South Africa’s outlook to “positive” from “stable” before.

Moody’s attributed the shift in the outlook to what it sees as the gradual strengthening in the country’s fiscal performance, as the National Treasury has become stricter in its debt management, as well as a keen focus on the structural reforms, which are reported to be on track in energy, logistics and water, among other areas.

Standard Bank Senior Economist, Dr Elna Moolman, says the Bank agrees with Moody’s that South Africa is heading in the right direction economically.

She says, “Moody’s upgraded the outlook on SA’s credit rating to positive from stable. This signals a possibility that it could ultimately upgrade the rating itself as well. This essentially reflects the improvement in South Africa’s fiscal prognosis and specifically reaching the milestone in the peak of the debt-to-GDP ratio. Moody’s now concurs with the government that the debt-to-GDP ratio should start to decline gradually”.

Moody’s still acknowledges the short-term risks, including the potential impact of the Iran war on the South African economy, but it argues that we have a firm commitment to fiscal consolidation. In other words, the government is really committed to putting our fiscal position on a sustainable path again, alongside fundamental structural growth reforms”, she adds.

While Moody’s noted the economic disruptions brought about by the current war in the Middle East, it believes South Africa’s policy responses would help guide the country through the short-term difficulties.

Moody’s expects that current structural reform efforts will result in greater investment in the economy, pegging growth at 2 per cent as early as 2028.

Makwe Masilela, Chief Investment Officer at Makwe Fund Managers, believes current initiatives will see the local economy start to fulfil its potential.

“Currently, we are dealing with the oil shock but, as it stands, we’re doing fine and I think when it comes to our exporters as well, they have to continue to look for decent markets out there, so that we don’t rely on a particular market, but we get to be diversified, then definitely we will be able to get the necessary economic growth that will be able not just to attract investors but also to encourage the current companies to make sure that whatever cash they have, they continue to deploy it to grow their companies and create the necessary jobs that are really needed”.

Moody’s change to a positive outlook for South Africa comes after S&P Global decided to upgrade South Africa’s sovereign credit rating to BB from BB minus in November last year.

The further prospect of the country’s credit rating being upgraded will help to improve the cost of capital going forward.

This is critical for a developing economy like South Africa, which is going to continue to need ample capital to invest in the country’s future growth.

Moody’s Ratings | SA economic outlook upgraded from stable to positive