Government has noted credit rating agencies Standard & Poor (S&P) and Fitch’s recent assessment of South Africa’s investment grading.
S&P in its rating affirmed South Africa’s long term foreign and local currency debt ratings at ‘BB and ‘BB’, respectively.
The agency maintained a stable outlook.
The National Treasury in a statement said according to the agency, South Africa’s near-term economic performance and current account are experiencing a cyclical uplift as a result of a combination of base effects following a large economic contraction in 2020 and improving terms of trade from higher commodity prices.
“However, structural constraints, a weak pace of economic reforms, and slow vaccination rates will continue to constrain medium-term economic growth and limit the government’s ability to contain the debt-to-GDP ratio,” reads the statement.
Fitch has affirmed South Africa’s long term foreign and local currency debt ratings at ‘BB-’.
The agency maintained a negative outlook.
According to Fitch, South Africa’s rating is constrained by high and rising government debt, low trend growth and exceptionally high inequality that will complicate consolidation efforts.
Treasury said the negative outlook reflects continued substantial risks to debt stabilisation despite the better than expected fiscal outturns in the fiscal year ending March 2021.
In the statement, the Treasury said government acknowledged the pressures the country’s credit ratings face and remains committed to addressing them.
“Additionally, government is aware that it needs to fast track growth-enhancing strategies. Operation Vulindlela is a key initiative in this regard and demonstrates government’s commitment to fast-tracking the implementation of critical reforms that raise economic growth and improve fiscal sustainability,” the department said.
Rating agencies have indicated that South Africa’s rating strengths include a credible central bank, a flexible exchange rate, an actively traded currency, deep capital markets as well as a favourable debt structure (low share of foreign currency debt) with long maturities, which should help counterbalance low economic growth and fiscal pressures.
“As highlighted in the 2021 Budget, government’s fiscal strategy puts South Africa on course to achieve a sufficiently large primary surplus to stabilise debt. Over time, debt stabilisation will reduce borrowing costs and the cost of capital, attracting investment that can support the economy,” Treasury said.
Government has implored all members of society to adhere to all the necessary health and safety protocols in place to minimise a rise in COVID-19 infections.
South Africa plans to accelerate its vaccination roll-out programme with Phase two having commenced on 17 May, with the aim of inoculating five million citizens aged over 60 by the end of June 2021.
Successful vaccination of the population will help prevent the spread of the pandemic as it poses downside risks to the economic outlook.