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Morocco (rated BB+/Stable Outlook) faces more benign credit challenges than South Africa (BB/Stable), driven by economic growth above potential, a sounder fiscal position, and better prospects for reform. This underpins the one-notch difference between Morocco’s long-term ratings and South Africa’s. Scope Ratings downgraded South Africa in October 2023.

“There are four main challenges – socio-economic, monetary, fiscal, external – that emerging economies such as Morocco and South Africa need to confront amid global economic uncertainty,” says Thomas Gillet, Director at Scope and lead author of today’s report.

Priorities for both non-investment-grade rated borrowers (Figure 1) include returning to stronger, durable and more-inclusive economic growth, which is vital for tackling poverty and inequality.

“Keeping inflation in check, partly by curtailing exposures to volatile commodity prices, is also important. So too is rebuilding fiscal cushions and containing government deficits while limiting increases in public debt amid today’s higher borrowing rates. Finally, countries need to strengthen their external-sector resilience to cope with future economic shocks,” says Gillet.

“Although both countries display similarities in terms of their economic profiles, manufacturing industries and natural-resource endowments, Morocco’s stronger growth in per capita output and flattening government-debt trajectory reflect credit strengths,” says Gillet.

Figure 1. Morocco outperforms South Africa on most key economic, social metrics

Source: Scope Ratings

“Morocco’s greater progress on reforms also helps offset its challenges in setting monetary policy and managing its exchange rate,” says Dennis Shen, Senior Director at Scope.

“Morocco’s close cooperation with the IMF, both on financial-sector and technical fronts, is also a core credit strength,” says Shen.

South Africa otherwise performs well on inflation targeting and exchange-rate flexibility. However, the country faces considerable policy uncertainties in addition to infrastructure deficits, notably with state power utility company Eskom, and governance concerns, particularly regarding corruption, which holds growth well under potential.

“The outcome of elections this year will define the pace of reforms moving forward for South Africa,” says Shen.

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