Scope Ratings Publishes Its First Sovereign Credit Rating in Africa

Scope Ratings, the European credit rating agency, has published its first sovereign credit rating of Africa, with a credit assessment of the Republic of South Africa (rated BB+ with Stable Outlook).

The rating of South Africa marks Scope’s first public sovereign rating in one of the world’s fastest-growing regions, a continent where domestic financial systems are developing and innovating rapidly. Scope believes its approach to sovereign and sub-sovereign ratings is well adapted to reflect the continent’s unique qualities.

Long-run Perspective

First, we have incorporated a long-run perspective into our sovereign credit rating model based on five-year forecasting. This allows the group to look past short-term market or cyclical crises, as long as instability does not structurally impair sovereign creditworthiness.

Furthermore, Scope’s methodology sets great store by factors such as the potential demographic dividend and rich ecological and biodiversity resources common to many African countries. African countries’ long-run environmental and economic sustainability will present ratings opportunities.

Scope offers an alternative view in assessing the longer-run ratings implications of comprehensive debt relief for highly-indebted countries, with an enhanced debt-restructuring model and emphasis on transparency, ensuring there are no ‘black boxes’ in the rating process.

Today more than ever, African sovereigns – rated and unrated – need stable and strengthened access to finance to fund sustainable recovery. We believe a rating assignment from a European credit rating agency presents an alternative credit assessment.

South Africa Rating Reflects a Long-term View

In its first-time rating of South Africa, Scope emphasised a long-term view of the credit. Its assessment considers the size and diversification of the South African economy, favourable public-debt profile, strong monetary-policy framework and advanced financial system. These are credit strengths anchoring a rating one level below investment grade.

Figure 1. Real GDP growth (%)

South Africa has approximately USD 250bn of debt outstanding and is Africa’s most established sovereign borrower. Scope Ratings expects South African economic growth to slow to 1.8% this year and 1.1% in 2023 (Figure 1). Favourable tax collections and a government commitment to budgetary consolidation support reduction of the fiscal deficit for FY2022/23 to 4.75% of GDP, but longer-run fiscal challenges remain significant.

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Giacomo Barisone is Managing Director of Sovereign and Public Sector ratings at Scope Ratings GmbH. Dennis Shen, Director at Scope Ratings, contributed to writing this commentary.