Prof Raymond Parsons, economist from the Business School of the North-West University (NWU), says the latest decision by rating agencies to leave South Africa’s investment grade and outlook unchanged are positive.
“The fact that rating agencies Standard & Poor’s and Fitch have both left South Africa’s sovereign credit rating – which is at present well below investment grade – unchanged for now is positive,” he says.
Prof Parsons says it at least gives South Africa more time to get its economic house in order. “The latest economic forecast by Fitch also broadly resonates with the trends outlined in the Monetary Policy Committee’s latest statement on May 20, with the gross domestic product (GDP) growth in 2021 now expected to exceed 4%.
“This strong ‘rebound’ in the South African economy this year is driven mainly by the base recovery effects from the negative -7% GDP growth performance last year, combined now with firm support from global commodity prices.”
Prof Parsons says that while recognising the rating strengths in the South African situation, both rating agencies again warn that structural constraints, the need for fiscal sustainability and a slow vaccination roll-out remain among the key obstacles that will hold back growth.
“There is consensus between the two latest rating agency assessments that there are still significant risks to debt stabilisation that need to be successfully managed. In its response, the government has acknowledged the pressures the country’s credit rating faces and says it remains committed to addressing them.”
According to Prof Parsons, it is clear that South Africa must therefore begin to find its way out of junk status and seek a better investment rating.
“The immediate priorities for South Africa remain to ensure a successful vaccine roll-out, stabilise its public finances, put its state-owned enterprises on a sound financial footing and provide energy security.”
Prof Parsons says this four-pronged emphasis in the short term, together with other economic reforms, will help to lay sound foundations on which to convert the present cyclical economic recovery into sustained medium-term job-rich growth.
