Economists do not foresee any further credit downgrades for South Africa unless there are unforeseen shocks in the external markets. Fitch rating agency has left the country’s credit rating at junk status (Sub-investment level) with a stable outlook.
In a statement, the agency said it left the outlook stable as the country is showing signs of economic recovery and that government has made positive progress on State-Owned Enterprises (SOEs).
Sub-investment level rating means that investors should be wary of lending the country money.
Despite a sharp decline in Gross Domestic Product (GDP) numbers for the first quarter of 2018, Fitch says it remains optimistic about the country’s growth prospects. It expects GDP to recover to 1. 7% this year and 2.4 % in 2019.
“I think the main thing is this constant worry about this growth trend and it’s something that we have been talking about for quite some time so I suppose and its worrying that we are still in the same conversation. But at the same time there are some positive things they are still encouraged by the progress that has been made in terms of governance remember that was a huge problem especially around State Owned Entities,” says Nascence Advisory and Research Economist Xhanti Payi.
Economist at the North West University Raymond Parsons says: ” They are happy about things like our banking systems, our deep capital markets that we have strong institutions and that’s on the positive side but they are clearly still concerned about the state of our public finances and state owned corporations and their finances like SAA and of cause policy uncertainty.”
Fitch also highlighted concerns around the high government debt including the expanding government wage bill. “The budget for example, where the Minister of Finance said for example one of the things they have to do is to try and stabilise debt and that is why we have seen increase in taxes,” says Payi.
Parsons says South Africa has been given breathing space by rating agencies to sort out its affairs. He does not, however, foresee any further downgrades.
“We now have recently seen that from a global point of view there is going to be a normalisation of global interest rates which will have an impact on emerging markets like South Africa. We can’t do much about that but what we can do is reinforce our commitment to building our resilience, to our own economy so that we can deal with any headwinds that might come from the global economy. At the moment the global economy is looking quite positive for South Africa and that is why we can still say over the next year or so we might see a growth rate of 1.5 or 1, 7 percent.”
Treasury says Fitch’s recent announcement means that collaboration with government, business, labour and civil society will continue in order to yield necessary interventions. Click below for more on the story:
