Fitch affirms SA’s sub-investment grade with a stable outlook

Global rating agency Fitch has affirmed South Africa’s sub-investment grade with a stable outlook. Fitch says if the country continues to control its expenditure, this could bring about debt stabilisation.

National Treasury has welcomed the latest credit review and says it is working to improve the efficiency of spending and remains committed to returning public finances to a sustainable path.

The latest credit review by Fitch comes a few weeks after S&P released its sovereign rating on South Africa. S&P affirmed the country’s credit rating as ‘positive’, citing the medium-term budget policy statements that showed the country’s intention to consolidate debt.

In its latest report, Fitch says South Africa is constrained by high and still rising government debt, low growth and high inequality that will continue to complicate fiscal consolidation. But there are silver linings. Fitch says the rating is supported by a favourable debt structure with long maturities and denominated mostly in local currency as well as a credible monetary policy framework.

Economic Credit Analyst, Bradley Kent, from Credit Rating Analytics says the country’s growth outlook is not all doom and gloom.

“The general sort of outlook for the economy is realistic from this report and what I’ve taken away from it is it’s not all doom and gloom there’s lot of potential if we look at different sectors.”

The rating agency says the persistent blackouts has a substantial impact on the country’s growth. It says while substantial investments in increasing generation capacity are under way, there is a risk that the power supply imbalances could deteriorate further with escalating effects on growth. Fitch bases its analysis on the South African Reserve Bank’s estimates that power cuts held back growth this year by one percentage point. And, that economic growth will not significantly improve next year and will only ease gradually in 2024.

“As a developing country that’s, you know, been hit by a previous shock less than 24 months ago 1.1 percent, if we look at it, relative to the global economy is not particularly bad. We’ve always kind of seen if we compare South Africa’s growth to global growth we’re always about a percent and half off, so one percent if we look at it that way is really not bad.”

Fitch rating agency says at this stage it assumes a substantial part of recent higher revenues to be temporary and sees current public sector wage negotiations pointing to increased upward pressure on spending.

At the same time, S&P says risks that could worsen government debt include the public sector wage negotiations, the pressure to make the social relief of distress grant permanent and Eskom debt.

Government welcomes S&P credit rating to keep South Africa unchanged at BB minus and BB respectively: 19 November 2022