SA's reserves hit $20bn milestone
11 May 2006
South Africa's net reserves - or international liquidity position - rose by US$579-million in April to top $20-billion, a mark seen as a milestone for emerging markets.
Gross gold and foreign exchange reserves accelerated from $22.9-billion in March to $23.8-billion in April as the Reserve Bank took advantage of a strong rand and surging gold price, increasing its foreign exchange reserves to $21.27-billion and its gold reserves to $2.56-billion.
According to Business Day, the reserves build-up could improve South Africa's chances of a ratings upgrade, with rating agency Moody's having already indicated that the country's next credit rating could better its current Baa1 rating.
"A country's external vulnerability is assessed by the amount of reserves held by its central bank," Brait economist Colen Garrow told Business Day.
According to Standard Bank economist Goolam Ballim, however, the reserves growth was unlikely to play a major role in raising the prospects of a ratings upgrade, as the data was but "one piece of a larger puzzle" which included poverty reduction and an improvement in the current account deficit.
Ballim said that while the reserves build-up would support a more stable local currency environment, the data indicated that the Reserve Bank would not like to see a substantially stronger rand, as this could lead to a further expansion of the current account deficit.
Analysts also noted that while South Africa's net reserves had improved substantially, they were still some way off those of emerging market peers such as Turkey and Hungary.
SA's credit ratings
In August, Fitch Ratings became the third major international agency to upgrade South Africa's sovereign credit ratings in 2005, following upgrades by Moody's and Standard & Poor's.
A better economic growth performance, stronger external balance sheet, entrenched macro-economic stability, increased public investment and transparent political system were among the reasons cited by the agencies for their upgrades.
Fitch raised South Africa's long-term foreign currency rating from BBB to BBB+, its short-term rating from F3 to F2, and its country ceiling from BBB+ to A-.
Earlier in August, Standard & Poor's upgraded SA's long-term foreign currency rating from BBB to BBB+ and its local currency rating from A to A+.
And in January, Moody's lifted SA's country ceilings for foreign currency debt and bank deposits from Baa2 to Baa1, with a stable outlook. Ratings on foreign currency-denominated bonds and notes was also raised to Baa1, with a stable outlook.
Sovereign credit ratings are a measure of a government's creditworthiness, with higher ratings implying less risk for investors, effectively making it cheaper for a country and its companies to borrow on local and international capital markets.
SA's foreign currency rating is currently three levels above the entry-level investment grade rating - on a par with Poland and Thailand, and within a notch of countries like China, Hungary and the Czech Republic.
SouthAfrica.info reporter
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