Remember when state capture scandals plunged South Africa’s credit ratings into junk status, leaving us scrambling for scraps of investor confidence? Well, hold onto your biltong — we’ve just notched our first credit rating upgrade in nearly two decades.
S&P Global Ratings delivered the good news last week, lifting our sovereign rating by a notch from BB- to BB, just one notch below investment grade.
Credit ratings are a bit like your personal credit score. You’d be refused a loan if you have a bad credit rating, or charged a higher interest rate, meaning you pay more on repayments. Similarly, junk status meant higher borrowing costs for South Africa and a lack of investor confidence.
What’s driving this turnaround? As we told you a few weeks ago, the government’s financial health is finally improving.
- We’re heading for a hat-trick: three primary surpluses in a row for the first time in over 15 years. A primary budget surplus is when the government earns more than it spends before paying interest on debt.
- For the first time since 2008, South Africa’s debt mountain is no longer growing – it peaks at 77.9% of GDP this year thanks to those back-to-back budget surpluses and better tax collection. This means R4.8 billion less spent on servicing our debt over the next three years.
- Bond yields, a measure of investor confidence, steadily fell over the course of this year to 8.65%, from 9.8% in January. That’s a good thing – lower yields make it cheaper for government to raise capital.
- Eskom is finally making a profit after eight years of losses. This means less risk of the parastatal needing another taxpayer-funded bailout.
This is all good news — and it may also be arriving just in time.
News emerged this week that Trump and allies in the US Senate are pushing a new bill that would renew the African Growth and Opportunity Act (Agoa) for two years, but explicitly excludes South Africa. The previous version we were a part of expired in September.
If passed, the new version potentially slams the door on duty-free exports worth billions in textiles, autos, and agriculture for South Africa. But introducing a bill is only the first in a long process in setting a new law. As SA noted, Agoa in its previous form has strong support across both Democrats and Republicans. Here’s hoping the version that excludes SA doesn’t pass.
