By Phenyo Selinda
Johannesburg, South Africa – South Africa’s long-term foreign and local currency debt ratings have been affirmed at ‘BB-’ by Fitch Ratings, with a stable outlook. This rating reflects both the strengths and weaknesses in the country’s economic and fiscal structures. While South Africa’s credit profile faces several challenges, particularly around low GDP growth, high poverty and inequality, and a rising debt-to-GDP ratio, Fitch acknowledges that there are some bright spots that help support this rating.
Key Constraints Identified by Fitch
Fitch’s decision to maintain South Africa’s ‘BB-’ rating is influenced by structural issues that have hampered economic growth. These include a rigid fiscal framework that limits the government’s ability to reduce deficits, combined with high government debt levels. South Africa’s debt-to-GDP ratio remains a particular concern, with projections indicating it could increase in the near term. This is compounded by slow real GDP growth, which has struggled to exceed modest levels in recent years. Additionally, poverty and inequality remain significant challenges, contributing to social and economic disparities .
Favourable Debt Structure and Strong Institutions
Despite these constraints, Fitch noted several positive factors supporting the stable outlook. A key element of South Africa’s resilience lies in its favourable debt structure, which features long maturities and is predominantly denominated in local currency, mitigating the impact of foreign exchange risks. Furthermore, the country benefits from strong institutions and a credible monetary policy framework, both of which play a crucial role in maintaining macroeconomic stability .
Progress on Operation Vulindlela
Fitch has recognised South Africa’s progress on reforms aimed at modernising critical network industries. The Operation Vulindlela initiative, launched in 2020, has made significant strides in the sectors of electricity, water, transport, and telecommunications. This reform agenda is seen as essential for improving the overall efficiency of the economy and is expected to contribute to a modest increase in real GDP growth over the medium term .
In particular, Fitch highlighted the improvements in electricity generation, which have significantly alleviated the energy crisis that previously plagued the country. Since March 2024, there have been no reported power supply interruptions, a stark contrast to the years of rolling blackouts. This progress in the energy sector is viewed as a positive step that could lead to further economic stability and growth .
Government’s Fiscal Consolidation Strategy
The South African government has outlined its approach to fiscal consolidation as a means to address the rising debt burden. This strategy involves expenditure restraint, coupled with moderate increases in revenue collection. At the same time, the government remains committed to supporting the social wage by ensuring that critical services, such as healthcare and education, continue to receive funding. Additionally, the government plans to reduce borrowing by leveraging gains in the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) .
Outlook and Challenges Ahead
Although Fitch’s stable outlook indicates a degree of confidence in South Africa’s capacity to manage its challenges, the road ahead remains difficult. Continued high government debt and slow economic growth are likely to remain concerns for the foreseeable future. The government’s ability to successfully implement its reform agenda will be crucial in determining whether the country can improve its economic trajectory. Fitch also noted the ongoing struggles in sectors like logistics, with Transnet’s performance continuing to pose challenges to the country’s overall economic health .
In response to Fitch’s rating, the National Treasury expressed its commitment to further reducing fiscal risks and continuing its programme of reforms. The government acknowledged the importance of addressing the high debt-to-GDP ratio and improving infrastructure performance in order to drive sustainable growth .
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