Treasury reacts to S&P's action to downgrade SA's credit rating outlook

Thursday, March 9, 2023

Government says it notes S&P Global's decision to revise South Africa’s credit rating outlook to stable from positive on Wednesday evening.

According to S&P, economic growth in South Africa is facing increasing pressure from infrastructure constraints, particularly severe electricity shortages.

In reaction, Treasury said, reforms to address infrastructure shortfalls and to improve governance and performance at State-owned enterprises (SOEs) are slow, weighing on growth, while contingent liabilities from SOEs pose continued downside risks to South Africa's fiscal and debt position.

“However, the agency acknowledges that the fiscal position improved in the fiscal year 2022 as revenue rose, thanks to the growth recovery following the 2020 recession, relatively high metals and mineral prices, and rising profitability in the finance and manufacturing sectors,” the statement read.

In addition, the rating agency affirmed South Africa’s long-term foreign and local currency debt ratings at ‘BB-’ and ‘BB’, respectively.

In response to the challenges observed by S&P, government acknowledged that higher economic growth and a durable recovery in the economic activity require a stable macroeconomic framework, complemented by rapid implementation of economic reforms and improved state capability.

Meanwhile, Treasury said government is taking urgent measures to reduce load shedding in the short term and transform the sector through market reforms to achieve long-term energy security.

“Other reforms are underway to improve performance in the transport sector, in particular freight rail.”

In addition, Treasury said fiscal consolidation measures have positioned the public finances to absorb a portion of Eskom's debt, maintain support for the economy and the most vulnerable, and make budget additions to fight crime and corruption. –