Fitch affirms SA’s BB+ rating with stable outlook
But it warns that SA’s ratings are weighed down by low growth potential, large government debt and contingent liabilities, and the risk of rising social tension
Fitch Ratings has followed suit with S&P Global Ratings by affirming SA’s rating with a stable outlook.
In a statement on Thursday evening, the ratings agency affirmed SA's long-term foreign-currency issuer default rating (IDR) at BB+.
It warned, however, that the country’s ratings were weighed down by low growth potential, sizeable government debt and contingent liabilities, and the risk of rising social tension due to extremely high inequality.
Despite this, SA still has strong institutions, a favourable government debt structure, deep local capital markets and a healthy banking sector.
Fitch is one of two agencies that rate the country’s creditworthiness at subinvestment grade following a surprise cabinet reshuffle when then president Jacob Zuma fired finance minister Pravin Gordhan, in March 2017.
While the ratings agency acknowledged that progress had been made in terms of President Cyril Ramaphosa's stimulus package, the revised mining charter and the reprioritisation of spending, it warned that these “measures will take time to implement and are not sufficiently far-reaching to raise medium-term potential growth significantly”.
“The general election expected for May 2019 is unlikely to lead to a significant change in the direction of economic policy making.”
It warned that potential growth was likely to remain below 2%.
Fitch also warned that the low-growth trajectory and high levels of inequality could undermine fiscal sustainability. It cited the debate around land reform, which “reflects frustration about a lack of progress on reducing inequality”, adding that the government had ensured that this would not negatively affect food security or economic growth.
It added that the weak financial conditions of state-owned enterprises (SOEs) remained a significant fiscal risk, saying although embattled state utility Eskom’s severe liquidity crisis had eased, “the long-term viability of the company remains in question and the utility may formally request direct sovereign support”.
In response, the Treasury said in a statement: “The main focus for government is to regain SA’s investment-grade status to make the country an attractive investment destination.
“This will be achieved by enhancing policy certainty and credibility, lowering the debt burden as well as restoring good governance and financial stability at public institutions and state-owned enterprises.”