South Africa (SA) could secure its first credit rating upgrade in nearly two decades on Friday when Standard and Poor (S&P) Global delivers its latest sovereign rating decision, amid investor optimism over its reform efforts.
Since 2020, SA has been rated as sub-investment grade or “junk” by all three major rating agencies.
Analysts, however, now see grounds for an upgrade by S&P to ‘BB’ from ‘BB-‘, citing fiscal consolidation and policy improvements.
If realised, the new rating would still be two notches below investment grade.
An eventual return to investment grade could pave the way for billions of inflows of investor money into Africa’s biggest economy.
Goldman Sachs and JPMorgan highlighted key metrics supporting an upgrade, including a contained peak in national debt, three consecutive years of primary budget surpluses, and the formal adoption of a 3% inflation target.
“We think that fiscal improvements, along with slightly stronger recent growth, will warrant a sovereign rating upgrade by S&P,” said Andrew Matheny of Goldman Sachs International.
Investor optimism lifted the Rand to its strongest levels since early 2023 this week, while local bond yields fell to multi-year lows.
Additionally, credit default swaps, a barometer of default risk, tightened as investors welcomed the stronger fiscal framework.
–Reuters–
