Despite the difficult global economic situation, South Africa baffled critics by earning BBB long-term and short-term B + ratings, with a stable outlook: a medium investment grade and a stable outlook for both the short and medium term. .
According to the latest Sovereign Africa Ratings (SAR) rating, BBB represented the country’s adequate repayment capacity in terms of its ability to meet its debt obligations.
SAR said the South African sovereign rating is “underpinned by resilient macroeconomic and non-economic fundamentals”.
He said SA’s trade with major trading partners rebounded after the disruptions to the Covid blockade.
These were influenced by:
- The current account of South Africa, which recorded a high surplus in March 2022, compared to last December, attributable to the improvement in export performance and to the increase in the prices of raw materials.
- The financial sector is stable, with banks holding adequate capital and sufficient liquidity for external bonds.
- Tax revenue improving in 2021 and in the first two quarters of 2022.
- Endowments of natural resources for South Africa, remaining a key resource for the generation of wealth, the yield of resources and the diversification of the economy.
- South Africa faces headwinds in terms of rising interest rates, energy adequacy and prices, as well as growing inflation prospects.
- The country’s fiscal position is relatively weak, attributed to Covid-related spending in 2020 and 2021.
- Contingent liabilities – state guarantees to state-owned enterprises.
- Possible public sector salary bill and discussions on the universal basic grant, disrupting the gains granted by the government to manage and contain the increase in public debt.
- Environmental sustainability as captured by the just transition drive to “decarbonise”, which could affect major mining and manufacturing industries.
SAR said the South African economy grew about 4.9% in 2021, driven by the recovery in supply-side finance and demand-side fixed investment.
Headline inflation rose to 4.5% in 2021 from 3.3% in 2020, on the back of rising food and transport prices and the official rate increased to 3.75% in November 2021 from 3, 5% in 2020.
The budget deficit hit a record 10% of gross domestic product (GDP) in 2020 due to the additional spending to mitigate the impact of Covid19.
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SAR said: “The budget deficit is estimated to have fallen 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, attributable to improving export performance and rising commodity prices.
External 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 dropped marginally to 70% of GDP in 2021 from 71% of GDP in 2020, thanks to fiscal consolidation.
“The financial sector is stable with banks holding adequate capital – 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 the 10.5%.
The SAR, however, warned that poverty remained high, affecting 50% of the population, with an unemployment rate recorded at 35% in August 2022.
“The economy is expected to grow 1.9% and 1.4% respectively in 2022 and 2023, supported by growth in trade, tourism, mining and manufacturing.
“Inflation is expected to rise to 5.8% in 2022 due to rising oil prices and likely increases in food prices following the Russia-Ukraine conflict, but will fall to 4.6% in 2023.
“The budget deficit is also projected to increase 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 a reduction in the wage bill.
“The current account deficit is projected to be 1.4% of GDP in 2022 and will rise to a surplus of 0.1% in 2023 due to the recovery in export demand and the expected decline in commodity prices.
“According to the National Treasury (2022), the government expects to reach a primary surplus in which revenues will exceed non-interest spending by 2023/24.
“In 2024/25, non-interest spending of the main budget will grow slightly above CPI inflation. The consolidated budget deficit is projected to shrink from 6% of GDP in 2022/23 to 4.2% of GDP in 2024/25.
“Large loan debt will stabilize at 75.1% of GDP in 2024/25. Debt servicing costs consume an increasing share of GDP and revenue and are projected to average Rand 333.4 billion annually over the medium term.
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“Total consolidated government spending will amount to Rand 6.62 trillion over the next three years and the social wage will absorb 59.4% of total interest-free spending over this period.
“Additional allocations of R110.8 billion in 2022/23, R60 billion in 2023/24 and R56.6 billion in 2024/25 are allocated to various priorities that could not be financed through the redefinition of priorities”.