SA’s junk rating likely to persist despite investor optimism

SA will be unable to shed its subinvestment or junk credit rating for years to come despite investor optimism about the economic trajectory under the government of national unity, say credit analysts.

S&P Global is scheduled to issue the results of its latest review on SA’s sovereign rating on Friday. The agency has its long-term foreign currency rating three notches into subinvestment grade at BB- with a stable outlook.

Eight months of uninterrupted power supply and the promise of faster economic reform under the coalition have boosted business confidence. But fiscal risks remain.It will be a while before economists can gauge the new government’s success at growth.

“That discussion around investment grade is still a very distant one. We’re still very far from that,” Sub-Saharan Africa economist at Bank of America Securities Tatonga Rusike said in an interview.

For S&P or the other two big agencies, Moody’s Ratings and Fitch, to move to a positive outlook — a sign that an upgrade may follow soon — would require evidence of much faster growth and progress stabilising public debt, analysts said.

Fitch also has SA’s long-term foreign rating three notches into subinvestment grade at BB- with a stable outlook. It has completed its 2024 reviews and raised doubts last week about the government’s ability to meet some of the targets it set in October’s medium-term budget.

Moody’s has SA two notches into subinvestment grade at Ba2 with a stable outlook.

“There are still big risks, at the same time, to the outlook for public finances,” said Miyelani Maluleke, head of SA macroeconomics research at Absa.

Growth forecasts for SA still lag those of many emerging-market peers. The government expects growth of only 1.1% this year. Analysts said sustained economic growth of about 2% and evidence that debt was stabilising could prompt a shift to a positive outlook in the first half of 2025.

Debt as a share of GDP jumped from 23.6% in 2009 to 74.1% this year, and the government said last month that it aimed for it to peak at 75.5% in 2026.

“[The ratings agencies] want to see evidence that the changes are actually delivered in terms of improved economic performance,” Maluleke said.

Reuters