The South African National Treasury on Friday welcomed the decision of international credit ratings agency Fitch to upgrade South Africa, saying it confirmed South Africa’s status as a haven.
“Our solid economic policies as well as our rapidly improving credit story confirm South Africa as a haven for both foreign direct and portfolio investments,” the Treasury said in a statement.
The South African economy entered a record upward phase on May 1 this year largely due to monetary and fiscal policy stability despite an extraordinarily volatile external environment.
The previous record economic expansion in the post-1945 period only lasted 44 months — from September 1961 to April 1965 — and occurred at a time when South Africa’s major export — gold — was fixed at $35 an ounce and exchange rates were fixed in terms of the 1944 Bretton Woods system.
The current “upward phase” in the South African economy started in September 1999, which means South Africa entered a new record economic expansion in May this year when the upward phase reached 45 months of age.
The last time the South African economy contracted was in the third quarter 1998. Real GDP growth was 3,5% in 2000, 2,8% in 2001 and 3% in 2002 at a time when the US economy grew at a far more volatile 3,8%, 0,3% and 2,4% in the same years.
On Friday, credit rating agency Fitch upgraded South Africa’s long-term foreign currency rating from BBB minus to BBB. The long-term local currency (rand) rating has also been upgraded from ‘BBB+’ to ‘A-‘ (A minus). The outlook for both ratings is stable.
“The upgrade reflects a strengthened policy regime which has resulted in a steady improvement in public and external economic indicators over the past six years and improved resilience of the South African economy to external shocks evidenced by higher and steady growth of 3% during the past three years despite dramatic movements in the external value of the rand and other external shocks,” Fitch said.
The downward trend in public debt external ratios since 1995, fast export growth as well as a sound and consistent monetary policy management regime are also positive factors that have contributed to the rating upgrade.
In light of the sovereign rating upgrade, Fitch has also changed its rating for five South African banks – Absa (ASA), FirstRand (FSR), Investec (INT), Nedcor (NED) and Standard Bank (SBK).
These ratings upgrade confirm the National Treasury’s long held view that the macroeconomic management path that the leaders of our country have embarked on is correct and will – as it already does – bear fruit. The Government has, and continues to, lay a solid foundation of stable consistent and prudent economic management policies for sustainable growth and development.
The ratings upgrade is particularly significant as it is announced on the eve of a roadshow in Europe that will precede the issuance of a Euro denominated bond by officials of the National Treasury to a wide variety of institutional and retail investors.
On November 12 last year, Standard & Poor’s (S&P) put South Africa on “ratings watch positive” with a view to upgrading South Africa after the February 26 Budget and March 4 Telkom listing. The market is therefore expecting an upgrade by S&P within days. – I-Net Bridge