South Africa’s long-term foreign and local currency sovereign credit ratings were raised one notch each by agency Standard & Poor’s on Monday.
The upgrade, which reflects on a country’s ability to repay money borrowed on the international markets, is based on improved macro-economic stability, the agency said in a statement.
The short-term foreign currency rating was also boosted by one notch, while the short-term local currency rating remains unchanged.
”The upgrade reflects South Africa’s strong track record of macro-economic management and improved prospects of sustainable higher GDP [gross domestic product] growth rates,” the international ratings agency said.
The national Treasury said the improvement shows that South Africa is ”in a confluence of interesting possibilities”.
These are backed by a stable macro-economic environment, low inflation and interest rates, rising consumer and business confidence, and a higher economic growth rate, said director general Lesetja Kganyago.
”This is underpinned by a political commitment to take the growth rate beyond 6%,” he said.
The upgrade also reflects an improving investment environment in South Africa.
”With that, one can expect the country risk premium to come down, leading to reduced cost of capital. One could then expect the cost of doing business in South Africa to come down,” Kganyago said.
Standard & Poor’s pointed to South Africa’s prudent macro-economic policies, a moderate debt burden, and strong and stable political institutions.
These are balanced by strengthened ”but still relatively vulnerable external finances”, and the economy’s ”severe structural socio-economic weaknesses”.
GDP growth is projected at an annual average of 4% for the period 2004 to 2008, the agency said. The inflation outlook remains benign.
”South Africa stands out among its peers due to its democratic and transparent institutions and entrenched political stability, the strength of its capital markets and financial sector, its monetary policy framework and the independence of the South African Reserve Bank.”
The agency expects the government’s creditworthiness to be maintained for the next few years.
But, the impact of HIV/Aids on the economy was highlighted on the risk side.
The impact of the pandemic ”could be contained with more resolute prevention and treatment policies”, it said.
”In any case, related costs are not expected to undermine the current sustainable fiscal stance.”
The country’s long-term rating prospects hinge on the continued alleviation of structural weaknesses through micro-economic reforms and sustained social delivery, the agency said. — Sapa