South Africa's economic prospects are showing signs of improvement, potentially paving the way for an upgrade of its junk-rated debt. According to a report by Morgan Stanley, positive sentiment has emerged following the African National Congress's (ANC) coalition with business-friendly parties after losing its parliamentary majority on May 29, 2024. This shift in political dynamics has been accompanied by reforms initiated by President Cyril Ramaphosa, which have spurred investment and improved fiscal metrics [c4e3c7a4].
The upcoming budget update is expected to reveal a primary surplus, with growth projections increasing from 0.3% to 0.7% of GDP. Additionally, government debt is projected to stabilize around 74% of GDP. These developments are crucial as S&P Global Ratings is set to review South Africa's sovereign credit rating on November 15, 2024. The country has faced challenges since receiving junk ratings in 2020, following a downgrade by Moody's, which was exacerbated by bailouts to state-owned companies and various scandals during Jacob Zuma's presidency [c4e3c7a4].
In contrast, Kenya is grappling with its own economic challenges, as highlighted by Moody's recent downgrade of its debt rating further into junk territory. This downgrade reflects the government's diminished capacity to manage its debt amidst ongoing protests against proposed tax hikes. President William Ruto's concessions to protesters have not sufficed to alleviate the economic strain, with public debt hovering around 70% of GDP [194af300].
While South Africa appears to be on a path toward fiscal recovery, Kenya's situation serves as a cautionary tale of the potential consequences of political unrest and economic mismanagement. The contrasting narratives of these two nations underscore the complexities of fiscal policy and governance in the region [194af300][c4e3c7a4].