Moody’s Investors Service, in its latest annual report on South Africa, points to the improving health of the economy and balance of payments as the basis for its positive outlook on the country’s Baa2 foreign currency ceilings.
In upholding its stable outlook on the government’s A2 domestic currency rating, the rating agency also credits the progress achieved in strengthening the public finances over the past decade.
In addition to robust public finances, factors supporting South Africa’s investment grade ratings include the increased diversification and openness of the economy and the stable, transparent macroeconomic policy framework, say Moody’s analysts Kristin Lindow and Atsi Sheth, authors of the new report.
The analysts also elaborate on the primary challenges facing the country, such as large unemployment levels, a need for faster growth to generate more jobs, a relative lack of domestic savings, and the socio-economic problems created by high HIV/Aids infection rates.
The rating agency emphasises that its positive rating outlook on South Africa’s Baa2 foreign currency ratings reflects the favourable foreign debt situation, which is comparatively better than its Baa-range sovereign peers. Its external debt service ratios are quite low, consistent with those peers.
While South Africa has rapidly improved its external liquidity position, Moody’s says that additional strengthening of official foreign assets is still needed to bring the external vulnerability ratio in line with other Baa-rated countries.
The rating agency’s report, “South Africa: Global Credit Research,” is a yearly update to the markets and is not a formal action to alter the credit rating of the issuer. – I-Net Bridge