South Africa's improved credit outlook from Moody's Investors Service reflected its sound fiscal management and could herald more upgrades from other agencies, the country's top Treasury official said on Tuesday.
"This is very good news for South Africa. It is a reconfirmation of a trend we have seen over the past few years in South Africa's credit ratings," Lesetja Kganyago, director-general of the National Treasury, said in an interview. "I wouldn't be surprised (to see other agencies following suit), we have very good credit (credentials)," Kganyago added.
Moody's earlier on Tuesday revised the outlook on the country's foreign-currency debt ratings to positive from stable, adding to a series of upgrades achieved over the past 10 years. It said the positive outlook reflected an improvement in the country's external credit indicators despite widening current account deficits.
"South Africa's external debt metrics are now generally stronger than those of its rating peers in the 'Baa' rating range," said Moody's analyst Kristin Lindow.
"The country's ability to pay - as indicated by its level of foreign currency debt relative to current account receipts and the low share of foreign currency debt in the government's total debt - suggests lessened vulnerability to exchange rate or other shocks." Moody's currently rates South Africa's foreign-currency debt and the country ceiling for foreign-currency bank deposits at "Baa1."
STEADY CAPITAL INFLOWS: Kganyago said the ratings improvement showed the agency was satisfied South Africa had made progress in addressing shortcomings that had previously been highlighted, including concerns around a wide current account deficit.
"We have taken specific steps to mitigate against a sudden drop in capital inflows," he said, referring to the steady inflows that have so far more than financed the deficit.
The shortfall on the account swelled to 7.8 percent of gross domestic product in the fourth quarter of 2006, partly due to a surge in oil imports, and is forecast at between 5 and 6 percent for the next few years as the government embarks on a multibillion-dollar infrastructure investment drive.
Investor concerns over the financing of the deficit weighed on the market and the rand currency in 2006, helping it weaken around 10 percent against the dollar that year.
Kganyago said measures to guard against an outflow of capital included moving the budget into surplus, restructuring the country's external debt profile and increasing investment to help unblock constraints to economic growth.
South Africa recorded a budget surplus of 0.6 percent of GDP in 2006/07 - the country's first ever - and is predicting another overrun in the current financial year.
It also concluded a successful debt exchange last month in which it issued a $1 billion 15-year global bond at its lowest dollar market interest rates and retired short-term paper. Finance Minister Trevor Manuel said it planned to further cut short-term debt in 2007.
Moody's said the outlook on the country's "A2" domestic-currency debt remains stable, however, as the ratings agency intended to reduce the two-notch gap between the two ratings by upgrading the foreign-currency debt. South Africa is investment-grade rated 'BBB+' by Standard & Poor's and Fitch Ratings.
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