By Lehlohonolo Lehana.
Rating agency Fitch has affirmed South Africa’s rating at sub-investment grade with a stable outlook, pointing to better-than-expected fiscal revenues and the government’s efforts to rein in spending.
Fitch said South Africa’s finances are constrained by high and still rising government debt, weak growth and high inequality. But it also has a “favourable” government debt structure, which is mostly in rand (not foreign currencies) and with long maturities. In addition, the country has a “credible” monetary policy framework.
The agency noted “substantial recent over-performance on fiscal revenues and the government’s strong efforts to control expenditure”, which if successfully continued, could bring about debt stabilisation.
“However, at this stage we assume a substantial part of recent higher revenues to be temporary and see current public sector wage negotiations pointing to increased upward pressure on spending.”
Fitch doesn’t expect load shedding will significantly improve next year and will ease only gradually in 2024.
South Africa’s growth potential remains low and is a key credit weakness, Fitch said.
“There recently has been more progress on the government’s reform agenda pushed by a focus on process bottlenecks under Operation Vulindlela, but full implementation still takes a long time and reforms on the agenda are limited in ambition. There is also a risk that measures to improve transport infrastructure, a key part of the agenda, are merely offsetting an underlying deterioration, as worsening capacity issues amid rising demand have held back mining exports this year.”
Tax revenue has been surprisingly high, but Fitch expects it to fall back as profits in the mining sector normalise.
Fitch kept South Africa’s long-term rating at ‘BB-‘ with a “stable” outlook.
National Treasury meanwhile said it had noted rating agency Fitch’s decision to affirm South Africa’s long-term foreign and local currency debt ratings at BB- and maintaining a stable outlook.
Treasury said that it was working to improve the efficiency of spending and remained committed to returning public finances on a sustainable path.
Also on Friday, US ratings agency S&P hiked its outlook on Eskom from “negative” to “stable”, keeping its rating at “CCC+”.
It noted that Eskom’s operating performance is deteriorating and its costs are rising, with billions spent on diesel for emergency power generation. S&P says there are signs that load shedding could increase in coming months. However, government’s plan to take on between one- and two-thirds of Eskom’s debt would help stabilise its finances.
Read the full statement here: Fitch Affirms South Africa at ‘BB.