The rand remained virtually unchanged yesterday though stocks on the JSE gained slightly after Moody’s Investor Services affirmed South Africa’s sovereign’s long-term foreign and local currency debt ratings at ‘Ba2,’ and maintained the stable outlook.
This country review by Moody’s implies neither a credit rating upgrade nor downgrade was currently likely for around the next 18 months.
The local currency started the day at R18.10 to the US dollar and weakened 0.4% to R18.18/$1 during the day before settling at R18.10/$1 in the afternoon.
But the JSE All Share index was 0.6% to 86 315 index points by 5pm, driven by a surge in Karooooo, Tiger Brands, Absa, Pepkor, and Barloworld stocks.
According to Moody’s, the ratings affirmation reflected South Africa's credit strengths from effective, core institutions such as the judiciary and the central bank, a robust, deep financial sector and a solid external position.
However, the ratings affirmation also acknowledged chronic challenges posed by the country's inequalities, which hamper reform progress and fuel social risk, as well as persistent structural constraints on economic growth, and a relatively high and costly debt.
“The recently formed Government of National Unity (GNU) has committed to continue the reform momentum of the previous administration, which began to show progress in the energy sector,” Moody’s said.
“However, we anticipate only a modest acceleration in economic growth. In turn, subdued growth complicates the challenge of preserving debt sustainability while meeting social demands and stimulating investments in critical network infrastructure, particularly in the energy and logistics sectors.”
Moody’s said the stable outlook reflected its expectations of low economic growth, a stable government debt burden at around 80% of GDP, and balanced risks.
“The ratings affirmation highlights that, despite some nascent improvements, South Africa's economic growth is likely to remain subdued,” it said.
“We project a gradual increase in real GDP growth to 1.7% in 2025-26 from 1.1% in 2024 driven by domestic demand, less restrictive monetary policy and continued favorable commodity prices. We expect the energy sector to increasingly drive private sector investments.
“However, this level of growth is unlikely to significantly reduce unemployment or mitigate social pressures. Further private sector involvement across other sectors is likely to be gradual.”
In response to Moody’s, the National Treasury said the government welcomed the ratings agency’s acknowledgment that the Government of National Unity (GNU) will
pursue structural reforms and ease growth bottlenecks.
“Government is pursuing policies to achieve rapid, inclusive and sustainable economic growth. Economic reforms are beginning to bear fruit; electricity availability has improved; the logistics system is stabilising and the cost of doing business is declining in some areas of the economy. Government is also transforming the way it prepares and delivers infrastructure projects.
“It is mobilising private sector resources that will augment public-sector capability and provide new channels for financing. As stated in the 2024 Medium Term Budget Policy Statement (MTBPS), government’s growth strategy over the medium term will be anchored by the following pillars: (i) Maintaining macroeconomic stability; (ii) Implementing structural reforms; (iii) Building state capability; and (iv) Supporting growth-enhancing public infrastructure investment.”
This comes after S&P Global Ratings last month decided to revise South Africa’s ratings outlook from stable to positive on improved reform program and economic growth potential.
However, S&P maintained South Africa’s credit ratings status below investment grade, with the sovereign’s long-term foreign and local currency debt ratings at ‘BB-’ and ‘BB’, respectively.
Investec chief economist, Annabel Bishop, said Moody’s was upbeat about South Africa’s “commitment to fiscal consolidation to preserve debt sustainability, despite significant spending pressures”.
“For a credit rating upgrade to occur from Moody’s South Africa would need to significantly alleviate the structural constraints on economic activity, strengthening the prospects of robust growth and eventual reduction in government debt,” Bishop said.
“SA is not off the hook, and Moody’s also warned it would consider downgrading South Africa's ratings if the country's economic growth prospects further deteriorate from current subdued levels, coupled with a persistent decline in its fiscal strength.”
BUSINESS REPORT