Johannesburg - South Africa's sovereign rating was affirmed by ratings agency Standard & Poors (S&P) on Wednesday.
The affirmation reflected South Africa's prudent macro-economic policies, a moderate debt burden, and stable political institutions. S&P added that President Jacob Zuma's May 2009 Cabinet appointments lent credence to the expectation that policy changes would not affect the government's macro-economic approach.
The outlook, however, remained negative.
This was due to, among other things, severe structural socio-economic weaknesses, S&P said.
The ratings agency said South Africa's recession would heighten the strain on the collection of taxes and government spending would keep the current account gap high.
The ratings agency anticipated a gross domestic product (GDP) contraction of at least 1.5 percent in 2009, and growth below trend in 2010, increasing the downside risks to fiscal outturns.
"South Africa's main rating vulnerabilities, however, continue to relate to the volatile financing of its current account deficit," S&P noted.
In line with its expectation of a GDP contraction, it forecast a tangible reduction in the current account deficit in 2009, but said the public sector investment push would keep it relatively high, at 5.4 percent of GDP from 7.4 percent in 2008.
South Africa's new administration under Jacob Zuma has said it will not change the conservative economic policies of the past decade that helped usher in a decade of growth and won praise from investors and rating agencies, despite increasing pressure from unions.
Zuma gave investor-favourite Trevor Manuel an influential post as head of a planning commission and the finance ministry went to Pravin Gordhan, a former tax chief who worked closely with Manuel over the past decade.
S&P affirmed South Africa's "BBB+/A-2" foreign currency and "A+/A-1" local currency long- and short-term sovereign credit ratings.
South Africa slid into its first recession in 17 years in the first quarter, shrinking by 6.4% - the biggest decline since 1984.
The weaker economic performance will cut tax revenue, leading to a budget deficit possibly widening to more than the budgeted 3.8%.
S&P said the deficit would peak at 4% of GDP in 2009/10 before narrowing again as the government returns to tighter fiscal policy.
The government and its utilities plan to spend R787bn to upgrade and build new infrastructure over the next three years, keeping machinery imports high.
- Sapa and Reuters