Standard & Poor’s (S&P) Global Ratings has lifted Spain’s rating to “A-” from “BBB+” and assigned the country a positive outlook, citing its “overall economic and budgetary performance,” which has not been hampered by political tensions in Catalonia.
“We expect Spain’s GDP will expand faster than the eurozone average over 2018-2021, and that the government’s budget deficit will continue to shrink,” S&P said in a statement.
“As a result, we are raising our unsolicited long-term sovereign credit ratings on Spain to ‘A-’ from ‘BBB+’ and assigning a positive outlook,” it said.
Fitch Ratings upgraded Madrid’s sovereign debt rating in January.
“The positive outlook signifies that we could raise our ratings on Spain within the next 24 months if the government achieves greater consolidation of public finances than we currently expect,” S&P said. “Further easing of political tensions in Catalonia would also support an upgrade.”
The Bank of Spain this week increased its growth forecast for this year to 2.7 percent from 2.4 percent as the government plans to reduce income tax for some workers and hike wages for civil servants.
The central bank has also predicted that economic growth will be slightly higher than expected next year.
However, S&P said the reduction in the tax burden would lead to a slower drop in the public deficit this year, which it predicts will reach 2.5 percent of GDP — still below the 3.0 percent limit set by the EU.
The Spanish government had planned for a deficit of 2.3 percent this year.
The government is expected to adopt its budget for this year at the end of this month, which is late, due to the secession crisis in Catalonia. It is then to be submitted to a vote in parliament.
Separately, South Africa on Friday escaped a third junk rating as Moody’s Investors Service kept its assessment of the nation’s debt unchanged, citing more transparent and predictable policies under South African President Cyril Ramaphosa.
The African nation’s outlook was revised to stable from negative. The decision could boost sentiment and will probably bolster the rand, which rallied after Ramaphosa took over as party leader of the ruling African National Congress in December last year and became president last month.
With the local-currency rating remaining investment grade, the nation avoids being excluded from global benchmark indices that could have led to outflows of as much as much as 100 billion rand (US$8.52 billion).
Moody’s maintained the country’s local and foreign-currency assessments at “Baa3,” the lowest investment-grade level, the ratings company said in a statement on Friday.
The affirmation keeps South Africa on the same level as that of Indonesia and Romania.
South Africa’s economic growth exceeded the government’s forecast last year, but has been below 2 percent since 2014.
South African Minister of Finance Nhlanhla Nene, who was reappointed last month after being removed in 2015, said that the South African National Treasury might raise its projected 1.5 percent growth forecast for this year.
Additional reporting by Bloomberg
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