S&P Global changes outlook for South Africa

Rating agency S&P Global unexpectedly revised South Africa’s credit rating outlook to stable from positive due to the country’s poor economic growth and infrastructure failures.

The agency said reforms to address infrastructure shortfalls and improve governance and performance at state-owned enterprises (SOEs) have been slow.

These failures weigh on the country’s growth, while the country’s crumbling SOEs pose a risk to South Africa’s fiscal and debt position.

The agency affirmed the long-term foreign and local currency debt ratings at ‘BB-’ and ‘BB’, respectively.

It comes in light of Statistics South Africa reporting on Wednesday that South Africa’s GDP shrank 1.3% in the fourth quarter of 2022 – a far larger contraction than expected.

While S&P acknowledged that the country’s fiscal position improved in 2022 due to increased revenue following the 2020 recession, the agency said it could lower the rating further if the situation worsens.

“We could lower the ratings if the ongoing implementation of economic and governance reforms does not progress as planned, resulting in further deterioration in economic growth or higher-than-expected fiscal financing needs,” it said.

“This could, for example, result from a deepening of the electricity crisis or if critical infrastructure constraints worsen.”

The agency’s stable outlook on both the foreign and local currency ratings balances South Africa’s credit strengths against the country’s infrastructure-related pressures on growth and the downside risks to the fiscal and debt position.

In a statement issued on Thursday, National Treasury said it is taking “urgent measures to reduce load-shedding in the short term and transform the sector through market reforms to achieve long-term energy security”. 

Treasury also mentioned other reforms underway to improve performance in the transport sector, with a particular focus on freight rail. 

“In addition, fiscal consolidation measures have positioned the public finances to absorb a portion of Eskom debt, maintain support for the economy and the most vulnerable, and make budget additions to fight crime and corruption,” Treasury said.