Morgan Stanley sees fiscal gains easing South Africa junk rating

South Africa’s improving economic prospects after years of lackluster growth will result in better fiscal metrics and may soon lead to an upgrade of its junk-rated debt, according to RMB Morgan Stanley. Positive sentiment in the continent’s most industrialised economy has built up since the African National Congress formed a governing coalition with business-friendly parties after losing its parliamentary majority for the first time since 1994 in the May 29 election. Reforms undertaken by Cyril Ramaphosa during his first term as president have also boosted the outlook and triggered a wave of investment by multinationals as well as rallies in the rand, bonds and the benchmark stock index. “South Africa stands out as the fastest-improving fiscal story” across Morgan Stanley’s emerging-market scope of coverage when measuring for fiscal-risk premia, Andrea Masia, an economist at its Johannesburg-based unit, said in a note. RMB Morgan Stanley expects a budget update on Wednesday to confirm a primary surplus in the year through March 2024, and the positive balance to grow from an estimated 0.3% of gross domestic product to 0.7% of GDP in the current period. It also sees government debt stabilising at around 74% of GDP over the medium term.