South African authorities are focused on hitting budget targets rather than pleasing credit-rating firms, according to the government’s top finance official — and the reward is a bond market that’s already pricing the country’s debt as investment grade.
Africa’s largest economy was cut to junk in 2017 after years of institutional erosion, fiscal deterioration, and rampant corruption known as “state capture.” The government has now reversed spending overruns into surpluses, with debt ratios set to decline from the current fiscal year.
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.
The nation’s dollar debt spreads, however, have tightened in recent months to levels comparable to emerging-market peers with investment-grade ratings. That’s a vote of confidence from those who count: bond investors, said Treasury Director-General Duncan Pieterse.
“Ratings actions are a lagging indicator of fiscal strength,” he said in an interview in Cape Town this week. “The market tells you what your fiscal strength is, not rating agencies.”
