Fitch affirms South African rating but doubtful on Ramaphosa boost

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Fitch affirmed South Africa’s sub-investment grade credit rating on Friday, citing signs of improvement in governance and prospects of a mild cyclical upturn, but also voiced worries about rising debt and difficulties at state-owned firms.

The credit rating agency puts both South Africa’s foreign and local currency debt at ‘BB+’, one notch below investment grade, with a stable outlook.

However, Fitch also noted “indications that financial challenges at key state-owned enterprises remain substantial and the fact that government debt has yet to stabilise”.

Africa’s most industrialised economy has barely grown in the past decade with fiscal missteps and government corruption contributing to weak business and consumer confidence.

Investor sentiment has picked up since President Cyril Ramaphosa pledged to clean up the graft and misgovernance that critics say bedevilled the administration of his predecessor Jacob Zuma, who was forced from office in February by the ruling African National Congress.

But Fitch, which has pencilled in economic growth of 1.7 percent this year, doubted that Ramaphosa’s efforts would make a significant difference.

“Current government initiatives are unlikely to improve trend growth significantly, as their implementation and timeline is uncertain and their impact on growth ambiguous,” Fitch said.

The economy suffered its worst quarterly contraction in nine years in the first three months of 2018 in a cautionary reminder of the huge challenge facing Ramaphosa.

South Africa suffered power outages for a second straight day on Friday as workers staged pay protests at the national power company Eskom, in a test of Ramaphosa’s resolve to cut costs at struggling state companies.

In a prompt reaction to the Fitch statement, the Treasury said concluding critical policies such as the mining charter was crucial to improving sovereign credit ratings.

“Furthermore, the recent changes in governance in critical SOEs (state-owned enterprises) and the 2018 Budget which outlined decisive and specific policy measures to strengthen the fiscal framework are expected to improve the investment climate of South Africa,” the Treasury said in a statement.

A draft of the hotly contested mining charter was being published on Friday evening.