Rating agencies unmoved by 2023 budget and greylisting

The generally positive reception of the 2023 budget may lead to hopes for a higher credit rating, while South Africa’s greylisting might suppress them. However, it seems South Africa is in for another ‘stable’ year.

The general market reception to South Africa’s 2023 budget has been positive, including feedback from rating agencies, said finance minister Enoch Godongwana.

Speaking on The Money Show with Bruce Whitfield, the minister said National Treasury is currently on a “roadshow” where they present the budget to local investors and, later in the year, global investors.

Following the budget, rating agency Fitch said it anticipated the government’s plans with relative accuracy and factored these assumptions into its previous sovereign review.

For example, the agency assumed an Eskom debt transfer of R200 billion over the next four fiscal years. In the budget, the government allocated R254 billion to support Eskom over three years.

In November 2022, Fitch reviewed and affirmed the country’s BB-/stable rating.

The agency also mentioned key risks to South Africa’s rating moving forward, including the poor condition of the country’s state-owned enterprises (SOE) and low economic growth.

“The government’s expectation that debt stabilises in the fiscal year ending March 2026 (FY25/26) relies on optimistic but plausible revenue forecasts but leaves risks from wage increases unaddressed,” the agency said.

Going grey

The recent announcement that the Financial Action Task Force has greylisted South Africa may add to concerns that the country’s ratings will drop.

Godongwana said South Africa being greylisting is not as dire as it may seem, and the country will be able to get off the list in less than two years.

Investec chief economist Annabel Bishop said the news would not necessarily result in any adverse moves by the rating agencies who have worked it into their calculations.

She noted that in prior reports that South Africa was likely to be greylisted, and that, on a standalone basis, the greylisting does not add to the likelihood of a downgrade.

Bishop explained how the good response to the budget may have buffered any negative impacts of greylisting.

“Broadly, the budget demonstrated that fiscal consolidation remains on track and is even running ahead of schedule on some ratios,” she said. 

“Eskom’s debt, along with other SOE debt government guarantees, was already included under the state debt, so the bail-out is credit neutral.”

Before the greylisting was announced, rating agency Standard&Poor’s (S&P) said it expected greylisting to raise government borrowing costs, but it would not immediately affect South Africa’s credit rating.