26 July 2007
Fitch Ratings has revised the outlook on South Africa’s sovereign ratings from stable to positive, attributing the change to improved growth performance, increased investments and sound public finances.
South Africa’s ratings for long- and short-term foreign currency issuer default (IDR) were affirmed at “BBB+” and “F3” respectively. The country’s long-term local currency IDR was affirmed at “A”, as was the country ceiling.
“The change in outlook reflects South Africa’s improved growth performance and prospects as a result of rapidly rising public and private investment and ongoing micro-reforms in the economy,” Fitch sovereign team director Veronica Kalema said in a statement on Wednesday.
“In addition, the country has seen a substantial improvement in its already sound public finances and strong external balance sheet.”
Increased government savings and use of fiscal surpluses to increase reserves and cover the cost of sterilisation have also reduced South Africa’s external vulnerability, the agency said.
Fitch said South Africa’s growth rate of 5% was sustained between 2004 and 2006 by strong consumer demand, while more recently acceleration of capital investment reflected a massive infrastructure investment by the country’s public corporations – both as part of the government’s general infrastructure programme and for infrastructure related to hosting the 2010 Fifa World Cup.
The agency said it expected consumer demand to remain firm despite rising interest rates, thanks to structural changes in the economy and a rise in employment and real income.
Fitch predicted that the country’s growth rate would to remain close to 5% in 2007 and potential growth would move still higher in the mediumterm. However, the agency also expects SA’s current account deficit to remain between 6% and 7% of gross domestic product.
South Africa still needed to address issues such as income inequality, unemployment, HIV/Aids and crime, the agency noted, saying these could threaten future stability.
“The positive outlook assumes a continuation of the current macro policy framework,” Fitch added.
“It would revert to stable if there were signs of weakening in the policy framework in response to political developments, or if external shocks did not meet with an appropriate fiscal and monetary response.”