Johannesburg - Moody's upgrading of South Africa's Baa1 foreign currency rating to A3 shows understanding that the government is committed to a "very sound approach" to fiscal policy, Finance Minister Pravin Gordhan said on Thursday.
Gordhan told Reuters in an interview the government would ensure policy consistency, but that the global economic crisis, which has left South Africa in recession, might require "extraordinary responses".
Moody's on Thursday unified South Africa's local and foreign currency ratings at A3, by upgrading its Baa1 foreign currency rating and lowering its A2 local currency rating.
Moody's said the upgrade of the government's foreign currency rating reflected the build-up in official foreign currency reserves and a net foreign asset position in the banking system, achieved despite large current account deficits in recent years.
Gordhan said the ratings outcome indicated a "realistic and optimistic" understanding of how South Africa has sought to mitigate the impact of a global slowdown, which plunged the country into recession in the first quarter of this year.
"We welcome their understanding that President (Jacob) Zuma's government ... is committed to maintaining a very sound approach to fiscal policy, but at the same time ensuring that we remain agile and responsive to the many challenges that countries like South Africa face," Gordhan said.
South Africa was happy with its reserves - which increased to a net of $34.574bn in June according to central bank data - but would "take whatever opportunities there are to increase those reserves in a responsible way", Gordhan added.
Despite an expected fall in revenue due to the recession, the government says it will press ahead with a 3-year R787bn drive to build and upgrade infrastructure, with much of the financing coming from loans.
Room for foreign borrowing
Moody's said last month South Africa has room to borrow more from international markets after it issued a 10-year foreign bond worth $1.5bn in May that was over-subscribed.
But Gordhan told parliament earlier this month the government should borrow from the domestic market as much as possible instead of relying on foreign inflows.
"We will ensure that the overall structural balance that we have maintained between foreign borrowings and local borrowings will be maintained," Gordhan said on Thursday.
"If there is a necessity to exercise more flexibility we will certainly look at that, we are not excluding any possibilities at this point in time.
"For now our foreign borrowing is done. We will keep this under review depending on our needs as we go on," he added.
Gordhan said Moody's concerns that pressure from the government's labour union allies for more expansionary fiscal and monetary policies may pose risks to the established policy framework were to be expected, but unwarranted.
Foreign investors are worried that Zuma's government - installed after an April general election - may buckle under pressure from its leftist allies to abandon the pro-business policies pursued by former President Thabo Mbeki.
"We will ensure policy consistency on the one hand, but ... we understand that the crisis might require extraordinary responses and it's important that as government we are capable of meeting the challenges of the current recession," Gordhan said.
"Nothing in policy has changed but the debates necessarily occur. We think that foreign investors and others who are watching South Africa today need to take into account the upgrade which has happened."
- Reuters