Both S&P Global and Fitch Ratings Agency have decided to leave their long-term sovereign credit ratings for South Africa unchanged three levels below investment grade.
S&P kept its stable outlook, while Fitch maintained its negative outlook of the country’s credit prospects.
In a scheduled rating report, S&P notes that structural constraints and a slow vaccination program will continue to undermine economic growth in the country.
In a responding statement, National Treasury says government’s fiscal strategy puts the country on course to achieve a large primary surplus to stabilise debt.
In its latest rating review of South Africa, Rating Agency Fitch says the negative outlook reflects significant risks to debt stabilisation.
Fitch says it expects the country’s economy to grow by 4.3% in 2021 and 2.5% in 2022 with a boost from commodity prices.
The agency anticipates that tight public finances and electricity shortages will hold back growth.
It says the government’s fiscal consolidation plan relies heavily on containing public sector wages.
Government responds to rating actions of S&P, Fitch:
S&P affirms South Africa’s long term foreign and local currency debt ratings at ‘BB-’ and ‘BB’, respectively.
The agency maintained a stable outlook. According to the agency, South Africa’s near-term economic performance and current account are experiencing a cyclical uplift as a result of a combination of base effects following a large economic contraction in 2020 and improving terms of trade from higher commodity prices.
However, structural constraints, a weak pace of economic reforms, and slow vaccination rates will continue to constrain medium-term economic growth and limit the government’s ability to contain the debt-to-GDP ratio.
Fitch affirms South Africa’s long term foreign and local currency debt ratings at ‘BB-’.
The agency maintained a negative outlook. According to Fitch, South Africa’s rating is constrained by high and rising government debt, low trend growth and exceptionally high inequality that will complicate consolidation efforts.
The negative outlook reflects continued substantial risks to debt stabilisation despite the better than expected fiscal outturns in the fiscal year ending March 2021.
Government acknowledges the pressures the country’s credit ratings face and remains committed to addressing them.
Additionally, Government is aware that it needs to fast track growth-enhancing strategies.
Operation Vulindlela is a key initiative in this regard and demonstrates Government’s commitment to fast-tracking the implementation of critical reforms that raise economic growth and improve fiscal sustainability.
Rating agencies have indicated that South Africa’s rating strengths include a credible central bank, a flexible exchange rate, an actively traded currency, deep capital markets as well as a favourable debt structure (low share of foreign currency debt) with long maturities, which should help counterbalance low economic growth and fiscal pressures.