South Africa’s Economic Gains May Spur Debt Rating Upgrade
TLDR
- South Africa's improved economic outlook may lead to a credit-rating upgrade for its junk-rated debt, driven by key reforms under President Cyril Ramaphosa.
- RMB Morgan Stanley expects a primary surplus of 0.3% of GDP for March 2024, projected to increase to 0.7% next year, boosting confidence in a potential upgrade.
- Confidence grows as South Africa's debt stabilizes around 74% of GDP, showing a clear positive trend compared to similar BB-rated nations.
South Africa’s improved economic outlook may soon lead to a credit-rating upgrade for its junk-rated debt, according to RMB Morgan Stanley. This follows a coalition between the African National Congress and business-friendly parties after losing its parliamentary majority in the May election.
Key reforms under President Cyril Ramaphosa have bolstered confidence, with multinational investment and rallies in the rand, bonds, and stock market.
RMB Morgan Stanley expects a budget update to confirm a primary surplus of 0.3% of GDP for March 2024, projected to reach 0.7% in the next year, with debt stabilizing around 74% of GDP. Improved fiscal health is boosting confidence in a potential upgrade, as South Africa’s debt remains higher than similar BB-rated nations but shows a clear positive trend.
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Key Takeaways
South Africa’s coalition-led reforms signal economic recovery, attracting renewed investor interest and setting the stage for potential debt-rating improvements. With stabilized debt and projected fiscal surpluses, the outlook is becoming positive. Credit-rating agencies are expected to review South Africa’s standing, with S&P scheduled for November 15 and Fitch and Moody’s expected following the budget update. If these fiscal and debt trends hold, South Africa could see an upward adjustment, ending a period marked by state-owned enterprise bailouts, high public-sector wages, and corruption under former President Jacob Zuma’s administration.
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