Despite tough global economic times, South Africa has confounded critics with a long-term rating of BBB and a short-term rating of B+ with a stable outlook – average investment grade and an outlook that is considered stable for both the short and medium term.

According to the latest Sovereign Africa Ratings (SAR), BBB represents a country’s sufficient solvency in terms of its ability to meet its debt obligations.

SAR said South Africa’s sovereign rating is “underpinned by robust macroeconomic and non-economic fundamentals”.

It said SA’s trade with major trading partners had resumed after disruptions during the Covid lockdown.

It was influenced by:

  • South Africa’s current account recorded a large surplus in March 2022 compared to December last year, attributed to improved exports and higher commodity prices.
  • The financial sector is stable, banks have sufficient capital and sufficient liquidity for external obligations.
  • Tax revenues increased in 2021 and in the first two quarters of 2022.
  • Natural resources remain a key asset for South Africa to generate wealth, resource rents and economic diversification.
  • South Africa faces headwinds in terms of rising interest rates, energy sufficiency and prices, and rising inflation prospects.
  • The country’s fiscal position is relatively weak due to Covid-related spending in 2020 and 2021.
  • Contingent liabilities – state guarantees to state enterprises.
  • A possible public sector wage bill and discussion of a universal basic grant, undermining the government’s progress in managing and containing the growth of public debt.
  • Environmental sustainability, embraced by the movement to simply transition to “decarbonisation”, which could affect key sectors of the mining and manufacturing industries.

The SAR reported that South Africa’s economy grew by an estimated 4.9% in 2021 – thanks to a recovery in supply-side financing and demand-side fixed capital investment.

Headline inflation rose to 4.5% in 2021 from 3.3% in 2020 amid rising food and transport prices, while the base rate increased to 3.75% in November 2021 from 3.5% in 2020 .

The budget deficit reached a record 10% of gross domestic product (GDP) in 2020 due to additional spending to mitigate the effects of Covid19.

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Saeed SAR: “The budget deficit is estimated to have declined to 5.8% of GDP in 2021, reflecting higher revenues and rationalized spending.

“The current account surplus was estimated at 3.8% of GDP in 2021, up from 2% in 2020, driven by improved exports and higher commodity prices.

“Foreign reserves increased from $54.5 billion in July 2021 to $58.4 billion in August 2021 (about five months of import coverage) thanks to the allocation of Special Drawing Rights (SDRs).

“South Africa’s total public debt is estimated to have declined marginally to 70% of GDP in 2021 from 71% of GDP in 2020, subject to fiscal consolidation.

“The financial sector is stable, with banks having adequate capital at 15.8% in March 2020 and 18.07% in January 2022 compared to 18.04% in December 2021 – well above the minimum regulatory requirement of 10.5% “.

However, the SAR warned that poverty remains high, affecting 50% of the population, with unemployment at 35% in August 2022.

“The economy is projected to grow by 1.9% and 1.4% in 2022 and 2023, respectively, driven by growth in trade, tourism, mining and manufacturing.

“Inflation is forecast to rise to 5.8% in 2022 due to higher oil prices and likely higher food prices – as a result of the Russian-Ukrainian conflict – but will decline to 4.6% in 2023.

“The budget deficit is also projected to widen to 6.2% of GDP in 2022, before falling to 5.1% of GDP in 2023 due to consolidation measures, including higher tax revenues and lower payrolls.

“The current account deficit is projected to be 1.4% of GDP in 2022 and to shift to a surplus of 0.1% in 2023 due to a recovery in export demand and an expected fall in commodity prices.

“According to the National Treasury (2022), the government expects to achieve a primary surplus where revenue exceeds non-interest expenditure by 2023/24.

“In 2024/25, core non-interest budget spending will grow slightly above CPI inflation. The consolidated budget deficit is projected to decrease from 6% of GDP in 2022/23 to 4.2% of GDP in 2024/25.

“Gross credit debt will stabilize at 75.1% of GDP in 2024/25. Debt servicing costs are taking an increasing share of GDP and revenue and are expected to average R333.4 billion per year over the medium term.

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“Total consolidated government spending over the next three years will be 6.62 trillion rupiah, and social media wages will account for 59.4% of total non-interest spending over the period.

“Additional allocations of R110.8 billion in 2022/23, R60 billion in 2023/24 and R56.6 billion in 2024/25 are made for several priorities that cannot be funded through prioritization.”

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