International ratings agency Moody’s said on Wednesday that South Africa’s Baa2 foreign currency rating and positive outlook reflect the government’s efforts to build on the political and economic achievements of the first post-apartheid decade.
In its annual report on South Africa Moody’s rates the government’s rand-denominated debt three notches higher at A2 (stable outlook), in recognition of its comfortable fiscal position and relatively low public debt.
Moody’s explains in the report that the results of the last ten years have exceeded expectations in many areas, with stronger growth, lower inflation, and healthier external and public finances even as the government funded a substantial expansion of social services and undertook comprehensive financial and trade reforms.
“A competitive exchange rate, lower nominal interest rates, and stronger global demand should support more rapid economic growth in South Africa in 2004 and 2005, following last year’s rand-induced slowdown,” predicted Moody’s vice-president Kristin Lindow, author of the report.
She added that, “after years of budgetary restrictions, the fiscal stance also has turned more accommodative in an explicit effort to help fill the country’s social and physical infrastructure needs and create jobs”.
With inflation on target, the South African Reserve Bank has taken advantage of a strong rand and ample foreign liquidity to address a chronically weak external position, including the elimination of the Bank’s net oversold position, said Moody’s.
Together with a significant increase in the net foreign assets of the private commercial banks, Moody’s said that the country’s external vulnerability is still higher than the average for Moody’s Baa-rated countries, but has lessened considerably.
The country’s other external debt indicators are in line with or better than those of its rating range peers, hence the positive outlook on the foreign currency rating.
“South Africa continues to face daunting socio-economic challenges, including wide income disparities between blacks and whites, high unemployment, and the prevalence of HIV/Aids, all problems that can be traced back to the legacy of apartheid,” Lindow said.
“The need to create jobs dominates the policy agenda, leading to state interventions of varying intensity, with the latest being the sectors-based black economic empowerment charters.”
These efforts to carve out new business and employment opportunities for blacks within the country’s established industries will coincide with continued emphasis on expanding infrastructure delivery in the years ahead, said the Moody’s report.
Even with success in these areas, however, the rating agency suggests that faster growth will be needed in order to staunch rising unemployment and to reduce poverty further. – I-Net Bridge