Credit ratings agency Moody's on Friday revised its outlook on South Africa to positive from stable, citing strengthening fiscal performance and progress on structural reforms.
However, it maintained the country's long-term foreign and local currency issuer ratings at “Ba2”. The South African government welcomed this decision.
Africa's most industrialized economy has, for more than a decade, been struggling with rising public debt, weak growth, repeated support for state-owned companies and the impact of the COVID‑19 pandemic.
While signs of fiscal discipline from the finance ministry have improved investor sentiment, the Iran war has clouded the growth outlook for net-energy importers like South Africa, which remain highly sensitive to rising fuel prices.
The rating agency said the positive outlook reflects rising primary surpluses, improving debt service costs and expectations that government debt will stabilize in the near term and begin a gradual decline.
South Africa's huge debt burden, whose interest payments drain a large portion of its revenue, is gradually easing as the government reins in spending, increases tax intake, and pursues reforms to revive growth and curb borrowing.
Moody's said that despite the improved outlook, South Africa's ratings remained constrained by factors including weak fiscal and economic infrastructure, low growth potential and high inequality.
Moody's said continued fiscal discipline could ultimately drive the debt burden markedly downwards.
S&P Global in November raised South Africa's sovereign rating to “BB” from “BB-“, giving the country its first credit rating upgrade in nearly 20 years.
Source: reuters