SOVEREIGN AFRICA RATINGS AFFIRMS SA’S CREDIT RATINGS

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Sovereign Africa Ratings (SAR) announced its second credit rating on South Africa on Friday, 19 May 2023, affirming the country’s long-term and short-term credit ratings at BBB and B+ respectively, with a Stable outlook. This rating action, since SAR’s first credit rating on South Africa announced in September 2022, means there has not been a substantial change in the country’s ability to pay its debts.


This rating and outlook reflect SAR’s expectation of solid financial, fiscal, and monetary flexibility despite the economic challenges faced by the country in the near to medium term. One of the main challenges is the electricity shortage, which is expected to reduce the Gross Domestic Product (GDP) by 2%, resulting in an estimated growth of only 0.3%. Other obstacles to growth include inflation, increasing interest rates, global economic slowdown, geopolitical tensions, low consumer and business confidence, the high unemployment rate of 32%, and inefficiencies in state-owned enterprises. These factors present credit challenges.


According to SAR’s second credit rating report available at: https://saratings.com/static/assets/file/ratings_publication/SAR_Rating_Action_Announcement_19_May_2023.pdf   South Africa’s gross debt is projected to rise from R4.73 trillion in 2022/23 to R5.84 trillion in 2025/26.However, it is expected to stabilise at 73.6% of GDP in 2025/26, compared to the Medium-Term Budget Policy Statement (MTBPS) projection of 71.4% in 2022/23. Debt service costs remain one of the largest spending categories, amounting to R340 billion for the fiscal year 2023/24.


In addition to announcing this second credit rating, SAR, an African ratings agency based in Midrand, South Africa, and licensed by the Financial Sector Conduct Authority (FSCA), has had a range of other accomplishments since launching in September 2022. SAR aims to ensure that Africa and emerging markets have independent, fair, and unbiased opinions of their creditworthiness. Over the years, all African economies have been rated externally and so SAR presents a major change as those that have been providing retrospective ratings represent the interests of groups outside the countries being evaluated.


The credit rating industry has not seen new significant entrants to the market in over 100 years, so the magnitude of SAR’s emergence cannot be overemphasised.


Zwelibanzi Maziya, SAR’s Chief Operating Officer, explains that some differentiating factors of SAR as compared to other rating agencies are that SAR’s approach takes into account the structural nature of developing economies through its analytical approach, which has an appreciation of opportunities and challenges faced by developing economies. This includes consideration for resource endowment beneficiation.


Going forward, SAR plans to position itself as the preferred credit ratings agency for developing markets through the provision of sovereign, sub-sovereign, corporates, financial institutions and alternative finance ratings such as Sukuk bond issuance.


The South African government’s efforts to address fiscal pressures, enhance revenue generation, and promote economic growth are crucial for maintaining stability and improving the country’s creditworthiness. Continued implementation of structural reforms, effective management of public finances, and addressing socioeconomic challenges will be instrumental in strengthening South Africa’s credit position in the long term.


For more on Sovereign Africa Ratings, visit: https://saratings.com/

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