Fitch maintains SA's ratings, and says losing the ANC election would not mean new economic policies

Fitch maintains SA’s ratings, and says losing the ANC election would not mean new economic policies

  • Fitch Ratings has kept South Africa’s credit rating unchanged.
  • But the US credit rating agency cut its economic growth forecast for 2023 to zero.
  • She also believes that the ANC may lose its majority in the general elections, but this is unlikely to lead to major changes in economic policy.
  • For more financial news, go to News24 Business front page.

On Monday, Fitch again maintained its “BB-” credit rating of South Africa – although it now expects no economic growth this year.

The US credit rating agency maintained its “Stable” outlook for long-term foreign and local currency debt ratings in South Africa.

South Africa has maintained its current credit rating since the end of 2021, when Fitch Ratings upgraded its outlook from “negative” to “stable”.

But where Fitch previously forecast the domestic economy to grow by more than 1% in 2023, it now expects zero real GDP growth in 2023 due to load shedding.

“Strong investment in power generation after sector liberalization should moderately improve energy supplies from 2024 and support recovery. However, real GDP growth will continue to be constrained by weak performance of the transport sector which is hampering exports.”

Fitch Ratings warned that South Africa’s rating is highly sensitive to a weak economy, shedding burdens, high government debt and inequality. But in the country’s favour: government bonds have long timeframes and are mostly issued in rand, and South Africa’s monetary policy is “credible”.

She also noted that the implementation of structural reforms under the government’s Operation Vulindlela initiative, launched in 2020, had “accelerated”. This included eliminating licensing requirements for energy projects.

“The logistics sector should also see effective separation of operations and infrastructure management functions by October 2023, which will enhance competition and third-party access to rail,” Fitch said.

“However, the reforms are limited in ambition and we do not believe they will significantly boost South Africa’s low growth potential.”

It continues to be concerned about high rates of unemployment and income inequality, which threatens social and political stability, through frequent strikes and protests. He adds that the ANC’s dominance has been challenged since its poor performance in the 2021 municipal elections, adding:

We believe that the party may lose its majority in the general elections in May 2024, but this is unlikely to lead to major changes in economic policy.

Fitch expects the government’s fiscal deficit to rise to 4.5% of GDP in the current year, from 4.2% last year, due in part to lower tax revenues in a weak economy and the Public Service Wage Agreement. Fitch warned that continued large fiscal deficits could lead to a downgrade. But its ratings could improve if government debt stabilizes.

In a statement following Fitch’s announcement, the Treasury said the government is taking urgent action to reduce load shedding and transform the sector through market reforms to achieve long-term energy security.

“In the medium term, the fiscal strategy aims to achieve fiscal sustainability by reducing the budget deficit and stabilizing the debt-to-GDP ratio. Budget allocations for infrastructure and other policy priorities and maintaining a sustainable fiscal position will support economic growth.”

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