International credit ratings agency Moody’s Investor Services has issued its annual report on South Africa, saying the country’s mid-investment-grade ratings and stable outlook reflect a coherent macroeconomic framework, healthy public finances and extremely manageable foreign debt.
The rating agency’s report, South Africa: 2006 Credit Analysis, is a yearly update to the markets and not a rating action, Moody’s noted.
It said South Africa’s A2 foreign-currency country ceiling is derived from the government’s Baa1 foreign-currency bond rating and Moody’s assessment of a low moratorium risk in the event of a government default on its own foreign debt obligations.
“These characteristics, along with the recent acceleration of growth, represent some of the dividends of more than a decade of prudent policy adjustment,” said Moody’s senior credit officer Kristin Lindow, one of the report’s authors.
“Growth is likely to stay at 4% or higher over the next two years, confirming the improved resilience of the economy, in spite of the monetary tightening already under way.”
The dynamism of domestic demand in recent years has been supported by ample credit availability as interest rates dropped and inflation consistently stayed within the South African Reserve Bank’s target range.
South Africans’ general standard of living has risen thanks to the broadened participation of formerly disadvantaged groups in the economy, although Lindow said progress in narrowing income disparities has been somewhat disappointing given the still-high unemployment and poverty levels.
“Moody’s has noted the significant strengthening of public finances thanks to tightened administration, which, in coming years, will facilitate higher spending on health, education, and the currently strained public infrastructure even as the government’s debt metrics continue to improve,” said Lindow.
“We believe that the policy framework is institutionalised sufficiently to alleviate recent concerns about the presidential transition in 2009.”
Although the country’s trade and current-account deficits have widened sharply, non-debt external financing remains ample.
The flexible exchange rate and the improved external and public debt profile have made South Africa better able to withstand global turbulence than was the case a decade ago, the analyst explained, adding that the rapid improvement in external liquidity over the past two years has already put South Africa squarely in line with its rating-scale peers, the report concluded. — I-Net Bridge