S&P Global Ratings lifts SA’s outlook to positive

S&P Global Ratings surprised the market late on Friday when it lifted the outlook on SA’s sovereign credit rating to positive, highlighting favourable terms of trade.

Terms of trade refer to the price of a country’s imports vs exports, with S&P saying these will “continue to support SA’s fiscal and external receipts, though the gains are partly offset by ongoing supply-side constraints to export volumes”.

“While rising inflation and global monetary tightening could accelerate foreign portfolio outflows, a flexible currency and deep capital markets alongside SA’s net external creditor position will help cushion the external risks, in our view,” S&P said.

The Treasury welcomed the decision highlighting that S&P “expects SA to post a current account surplus in 2022 for the third consecutive year, as prices for key metals and mining exports have risen significantly since the start of the Russia-Ukraine conflict”.

“S&P also notes some improvement on the implementation of key reform targets ... to accelerate the implementation of structural reforms as well as higher-than-expected tax revenue,” the Treasury said in a statement released shortly after the decision was announced.

S&P did however warn: “We forecast that fiscal deficits will remain elevated but gradually narrow to 5% of GDP by fiscal 2025 (year-ending March 2026).”

In early April Moody’s Investors Service changed the outlook on SA’s rating to stable, while Fitch Ratings made the same move a few months before that.

All three agencies have SA debt in junk status, with Moody’s two rungs below investment grade while S&P and Fitch have the country one level below that. 

“A path toward contained fiscal expenditure, and the implementation of some structural reforms could lead to a continued easing of fiscal and external pressures,” S&P said.

The rand, which traded in a fairly tight range on Friday, was last seen a marginal 0.13% weaker at R15.8332/$. 

lindera@businesslive.co.za