South Africa bags hat trick of credit upgrades

SA has scored a ratings hat trick, with Fitch Ratings becoming the third of the major international agencies to upgrade SA’s sovereign credit ratings this year.

But the clear message from all three agencies is that any further upgrades will depend on SA making progress on its socio-economic objectives of cutting poverty and unemployment.

“One thing that is clear from all the rating agencies’ statements is that we have got to focus on reducing poverty and unemployment, to ensure sustained long-term stability for SA,” said national treasury director-general Lesetja Kganyago yesterday.

Fitch upgraded SA’s long-term foreign currency ratings from triple B to triple B-plus, bringing it to within one notch of the coveted A rating.

The Fitch move follows the upgrades by Moody’s in January and Standard & Poor’s this month, with SA’s sovereign rating now at three notches above the entry level for investment grade on all three ratings scales.

The agencies have all cited SA’s increased level of foreign exchange reserves and its higher economic growth rate as reasons for their upgrades.

Better credit ratings help countries, and their companies, to borrow at better rates, thus lowering the cost of capital for government and for corporate borrowers.

They may also help to bring in new investors, since many pension fund managers, for example, have mandates that permit them to invest only in paper with a certain minimum credit rating.

SA’s “sound and transparent public finances” remained a key rating strength, Fitch said. It also noted that black economic empowerment seemed to have been managed without any serious disruption to the economy.

However, the agency said labour market reforms and improved education and training were needed to spur more investment and growth and alleviate SA’s unique socio-economic problems.

Source: Hilary Joffe SA bags hat trick of credit upgrades, Business Day, 26 August 2005

For text: http://www.businessday.co.za/articles/article.aspx?ID=BD4A84726

For more on SA critical issues: www.freemarketfoundation.com

FMF Policy Bulletin/ 30 August 2005