South Africa welcomed Moody’s change of outlook for South Africa to stable from negative and hailed it as an indication of further improvement of the country’s finances.
“South Africa’s revenue collection has improved substantially, resulting in a change in outlook. The government is also controlling spending,” senior economist at Efficient Group Dawie Roodt told SAT on Monday.
According to Moody’s, commodity prices have boosted the profitability of mining companies, which resulted in a 58 percent jump in corporate income tax in fiscal 2021, or 2 percent of GDP, more than anticipated in the initial.
It also said that South Africa’s government also limited its wage bill growth to 1.6 percent for the first time in many years, which is well below inflation.
Moody’s previously rated South Africa at Ba2, two rungs below investment grade, with a negative outlook, which means the next step could potentially be another downgrade.
Among the factors driving the decision to change the outlook to stable was the improved fiscal outlook, which increases the likelihood that the government’s debt burden will stabilize over the medium term, it said.
“While risks related to weak state-owned enterprises (SOEs) and social demands remain, they are consistent with a Ba2 rating. Indeed, over the last two fiscal years, the government has shown it was able to re-prioritize its spending while staying committed to fiscal consolidation, which Moody’s expects will remain the case going forwards,” Moody’s said in a statement.
National Treasury also hailed the change in outlook, saying that the government had worked to reprioritize spending over the last two years while being committed to fiscal consolidation.
