S&P upgrades SA outlook to positive

The recent announcement by Standard & Poor's (S&P) to upgrade South Africa's rating outlook to positive from stable has sparked optimism in the market and among investors. The decision comes after the formation of a broad coalition government, which has improved political stability and eased financing conditions in the country. Annabel Bishop, Chief Economist at Investec, shed light on the implications of this upgrade in a recent interview with CNBC Africa. According to Bishop, the move by S&P is not a change in credit rating but a shift in outlook, setting the stage for a potential credit rating upgrade in the future. The agency highlighted the positive impact of the government of national unity on debt yields, portfolio inflows, and overall economic stability. This newfound stability is expected to attract more investment and drive economic growth, while also paving the way for predictable fiscal policies. Bishop emphasized that the upgrade reflects a combination of factors, including political stability, fiscal consolidation efforts, and the potential for increased private investment. While the projected growth rate of 1.4% from 2025 to 2027 may seem modest, it is crucial for demonstrating fiscal sustainability and debt reduction. S&P's criteria for a rating upgrade hinge on South Africa's ability to translate economic growth into improved government finances. In terms of timing, Bishop noted that S&P typically allows around two years for a rating upgrade or downgrade following a change in outlook. This means that South Africa will need to maintain its current trajectory and deliver on its economic reforms to secure a credit rating upgrade. While reaching investment grade status in the next five years may be ambitious, Bishop expressed confidence in the country's potential for multiple credit rating upgrades if reforms are sustained. Overall, the path to investment grade will require continued commitment to reforms and a concerted effort to address fiscal challenges. With a clear roadmap in place, South Africa is positioned to attract more investment, stimulate growth, and enhance its creditworthiness on the global stage.