SA's rating outlook raised from stable to positive - prospects encouraging - 1 March 2000

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SA's rating outlook raised from stable to positive - prospects encouraging

1 March 2000 News

Moody's Investors Service has changed its rating outlook for South Africa's country ceiling for foreign currency debt (Baa3) and the ceilings for foreign currency deposits (Ba1/NP), as well as the domestic currency rating (Baa1), from stable to positive.

In a February release it said that this improved outlook was motivated by government and the South African Reserve Bank's further substantiation of a cohesive and sound macroeconomic framework. Moody's states that they also reflect the prospects for a strong economic recovery over the next several years, which is envisaged to strengthen South Africa's virtuous fiscal performance and the country's debt repayment capacity.

Moody's projects that the growth upturn will not have significant negative consequences for the external trade accounts or the balance of payments, which would allow the substantial improvement in the country's liquidity position to continue. The agency pointed to the rapid growth in manufacturing exports and vigorous expansion in the non-agricultural economy as evidence of the fruits of the industrial restructuring as well as of the trade and financial market liberalisation that have been implemented.

In its previous December release, Moody's gave as reasons for the rating: the country's smooth political transition and policy continuity; fiscal numbers which continued to improve; privatisation of state enterprises; transparent monetary and exchange rate policy and the sound and developed banking system. It further said that the new free trade agreement with the European Union represented an opportunity for strengthening trade opportunities. However, the lack of strong growth required to create jobs was a primary constraint of the rating.

In this latest release Moody's praised the South African Government's preparedness to mould its education and labour policies with a view to maximising skill development and employment growth. This, in their view, will represent an opportunity to sustain the economic expansion beyond the short term. Moody's indicated that they would welcome further progress in the areas of labour market liberalisation and privatisation of state-owned enterprises. However, they also expressed concerns about the prevalence of HIV infection and crime in South Africa.

On balance, however, Moody's remains positive about the proactive political and economic management that is likely to accelerate the pace of growth and diminish the country's social inequalities. The South African Government stated that Moody's concerns are noted and that they are being addressed on an ongoing basis.

For further information contact Lesetja Kganyago, Department of Finance, (012) 323 1703.

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SA's rating outlook raised from stable to positive - prospects encouraging

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