Ratings agency S&P Global affirmed its rating on SA as expected on Friday night after it revised the outlook on the rating down from positive to stable in March.
The agency, whose rating on SA is three notches below investment grade, expects growth to remain muted while public debt accumulates faster than it previously expected.
However, it said: “Our rating on SA benefits from the country’s sizeable and sophisticated financial system that provides a deep funding base from which the government can meet its elevated funding needs.”
S&P sovereign analyst Zahabia Gupta also said in a report on Friday night that SA had “relatively strong” institutions, particularly the Reserve Bank.
The report warned that revenue underperformance and rising spending pressures would see government debt climb to 83% of GDP by March 2027 — in contrast to the Treasury’s projection in the recent medium-term budget that the debt ratio would stabilise at 77% by 2026.
S&P also said that even though private sector investment in electricity generation had increased significantly, electricity shortages and rail and port bottlenecks would keep SA’s per capita growth rate to under 0.5% over the next five years.
S&P has traditionally watched per capita economic growth prospects closely and its unexpected March decision was believed by some economists to have been triggered by worse than expected GDP figures and slow economic reforms, despite better than expected February budget projections.
Its latest report again sounded the alarm about growth and state-owned enterprises, warning that S&P could lower the ratings “if the ongoing implementation of economic and governance reforms does not progress as planned, resulting in a further deterioration in economic growth, or higher than expected fiscal financing needs”.
An economic strategist at Matrix Fund Managers, Kim Silberman, said she had expected the rating to remain unchanged. “It would be too soon for them to change their outlook unless there was a significant unforeseen event that changed the country’s risk profile,” she said.
Another economist, who could not be named because of company policy, said growth remained a focal point for S&P and the economy had remained surprisingly resilient. The rating outlook would probably only shift if there was a real threat to growth, the economist said: “I think there is a wait and see period. The election clearly is an uncertainty for the outlook.”
Responding to S&P on Friday, the Treasury said the government would focus over the next three years on “raising GDP growth by improving the provision of electricity and logistics, enhancing the delivery of infrastructure and restructuring the state to be fit for purpose. Fiscal policy continues to support this approach by stabilising debt and debt service costs.”
S&P and Fitch have the same rating on SA at BB minus and a stable outlook. Moody’s has the rating one notch higher, though still subinvestment grade, at Ba2, and economists expect the three agencies will be watching closely to see how the Treasury frames the February budget.
Gupta said the stable outlook on the rating “balances SA’s credit strengths — particularly a credible central bank, a flexible exchange rate, an actively traded currency and deep capital markets — against infrastructure-related pressures on growth, and downside risks to the fiscal and debt position”.
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