<\/p>\n
South African authorities are focused on hitting budget targets rather than pleasing credit-rating firms, according to the government\u2019s top finance official \u2014 and the reward is a bond market that\u2019s already pricing the country\u2019s debt as investment grade.<\/p>\n
Africa\u2019s largest economy was cut to junk in 2017 after years of institutional erosion, fiscal deterioration, and rampant corruption known as \u201cstate capture.\u201d The government has now reversed spending overruns into surpluses, with debt ratios set to decline from the current fiscal year.<\/p>\n
Ratings companies have started rewarding the improvement in state finances. But while Fitch Ratings and S&P Global Ratings have made positive changes to their credit assessments, they remain at BB, two steps below investment level.<\/p>\n
Read:
A lack of situational awareness<\/p>\n
The nation\u2019s dollar debt spreads, however, have tightened in recent months to levels comparable to emerging-market peers with investment-grade ratings. That\u2019s a vote of confidence from those who count: bond investors, said Treasury Director-General Duncan Pieterse.<\/p>\n
\u201cRatings actions are a lagging indicator of fiscal strength,\u201d he said in an interview in Cape Town this week. \u201cThe market tells you what your fiscal strength is, not rating agencies.\u201d<\/p>\n<\/p>\n
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A measure of the nation\u2019s yield premium over risk-free assets has tightened to about 102 basis points, in line with Mexico (BBB, or two steps above junk) and lower than Romania (BBB-, the lowest investment-grade level). They\u2019ve fallen from a peak above 467 basis points in July 2022, amid an aggressive US Federal Reserve hiking cycle that sparked a selloff of emerging-market bonds.<\/p>\n
In another sign of growing investor confidence, the cost of insuring the nation\u2019s debt against default using five-year credit-default swaps has dropped to a 15-year low of around 120 basis points, compared with Romania\u2019s 141.<\/p>\n
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Investment, not regulation, will drive growth \u2013 Kganyago<\/p>\n
South Africa is still on track to lower its ratio of debt to gross domestic product, despite disruptions caused by the Iran war, Pieterse said. A sustained drop would mark the first time in 17 years. The Treasury sees the measure peaking at 77.3% in the current fiscal year.<\/p>\n
Not everyone is convinced. The International Monetary Fund forecast in April that the ratio would continue to rise to rise to 79.7% of GDP next year.<\/p>\n
\u201cThere are some definitional differences which matter less now,\u201d Pieterse said. \u201cBasically they are saying that debt is not going to stabilise, and so I guess we\u2019ll settle that debate in February,\u201d he said, referring to the annual budget statement scheduled for release that month.<\/p>\n<\/p>\n
To ensure fiscal sustainability, the government plans to introduce a \u201cprinciples-based\u201d fiscal rule with spending targets encased in law. Yet even without such an anchor, the current administration has managed to grow the primary budget surplus \u2014 which excludes interest costs \u2014 and stabilise debt.<\/p>\n
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The country has already reached its foreign-currency borrowing target for the year through a mix of bonds and loans from multilateral institutions. While lower borrowing costs may look like a good time to take on more debt, the government won\u2019t issue foreign bonds opportunistically, Pieterse said.<\/p>\n
\u201cThe only reason you would do that is if you don\u2019t believe that next year you\u2019re going to be in an even better position, which we believe,\u201d he said. \u201cThat\u2019s the point of how fiscal credibility works: as you continuously execute on it, your borrowing possibilities improve over time.\u201d<\/p>\n
Pieterse declined to predict when South Africa might regain its investment-grade status, but said the Treasury had been proactive about communicating with the ratings companies, while building a track record of fiscal consolidation.<\/p>\n
Read:
Locked up, or locked in? Why a bond ladder isn\u2019t a trap<\/p>\n
Bond investors are \u201cvery good at assessing\u201d sovereign risk in real time, he said. While borrowing costs rose steeply after the outbreak the Iran war, the benchmark 10-year government yield has been falling since the end of March and is now more than a percentage point lower than a year ago.<\/p>\n
\u201cOur interest is not in when exactly rating agencies would respond,\u201d Pieterse said. \u201cOur interest is in delivering on our fiscal targets because we know the response to that is immediate, and the benefits of that are immediate.\u201d<\/p>\n
\u00a9 2026 Bloomberg<\/p>\n
#South #Africa #upgraded #bond #market #rating #firms #lag<\/p>\n","protected":false},"excerpt":{"rendered":"
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