Fitch
Fitch Ratings, a leading provider of credit ratings, has affirmed South Africa’s long-term foreign and local currency debt ratings at ‘BB-’ while maintaining a stable outlook. The decision reflects a delicate balance between the country’s economic constraints and its financial strengths.
Fitch’s assessment highlights several challenges facing the South African economy, including sluggish real GDP growth, pronounced inequality, and a worrisome trend of rising government debt relative to GDP. In addition, the country’s fiscal health is under pressure due to increased spending amidst limited growth prospects.
Compounding these difficulties are enduring electricity shortages and inefficiencies within the logistics sector, both of which have stymied economic development and growth. Fitch forecasts these power outages, referred to locally as ‘load shedding’, to continue affecting the country into the future, albeit at a reduced intensity in 2024 and 2025.
Despite these hurdles, Fitch noted several factors that contribute positively to South Africa’s rating. A significant aspect of South Africa’s debt structure is its favorable terms, with long maturities and a majority proportion denominated in the local currency. Additionally, South Africa benefits from robust institutions and a credible monetary policy framework, elements that support the nation’s creditworthiness.
The National Treasury of South Africa has expressed commitment to bolstering economic growth by improving electricity provision and logistics, alongside enhancing infrastructure delivery. These efforts are seen as critical to stabilizing debt and controlling debt-service costs. The government’s approach includes a combination of fiscal consolidation strategies, aiming at both spending reductions and revenue generation through moderate tax measures.
In line with shifting towards a more resilient economic state, the government is expected to reap the benefits of increased private-sector involvement, especially in energy capacity expansion projects. These developments are anticipated to provide some relief from the chronic bouts of load shedding that have plagued the nation.
Fitch’s stable outlook suggests that the agency believes that the country’s credit strengths and weaknesses are in balance, and it does not anticipate a change in the near term. This serves as a signal to investors and policymakers about the ongoing economic challenges as well as the potential for resilience and recovery within the South African economy.
The National Treasury reaffirmed its resolve to adhere to its fiscal consolidation plans and to implement measures that will support sustainable economic growth and financial stability.
The offices of Fitch Ratings building. REUTERS/Dylan Martinez
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